The Man Who Just Bought 7 Percent of the World’s Cocoa

Anthony Ward, founder and CEO of Armajaro who just took delivery of all that cocoa, gave an interview in January that give some insight into why he bought so much cocoa. He is clearly betting on future shortages and hopes to cash in on the likely profits.

On the other hand there are voices that claim Anthony Ward ended holding the bag (or better over 3 million bags of cocoa) after a deal went wrong. Globe and Mail author Paul Waldie claims that Ward ended up on the “wrong side of a private hedging arrangement with Swiss chocolate-maker Barry Callebaut AG.” On Monday, news surfaced that almost half of the cocoa in question had been passed on to Barry Callebaut. Since then, the London price of cocoa has dropped by almost 6 percent.

Did Sombody Say ‘Corner?’

Yesterday, I mentioned that the massive purchase of cocoa that took place yesterday in London reminded me of the attempts to corner commodities markets in the late 1800s. Today, the UK’s Telegraph makes it explicit. Citing unnamed experts, the paper reports that “it was very unlikely that a chocolate company, such as Nestle or Kraft, or even their suppliers, would buy such a huge order in one go and that is was probable that one or a number of speculators, possibly hedge funds, had attempted to corner the market.”

Then MSN reported that the hedge fund actually has a name. It’s Armajaro, both a global cocoa broker and the operator of several hedge funds. Later Wall Street Journal Online reported that BNP Paris Bas and nine other brokers took possession of the cocoa. Ah, confusion. That’s what a corner is all about.

Wow, it’s like in the days of the robber barons.

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A Funny Thing Happened on Thursday

Futures markets are basically places where people sell things they don’t have to people who don’t want them. In plain English, this means, traders just shuffle papers in the hopes of either averting price risk or making a profit. Positions are squared with opposite positions before the due date and nobody ever has to deal with the messy reality of the actual commodity. Only two percent of futures contracts in cocoa ever result in actual delivery of cocoa.

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