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.
European Cocoa Companies Distrust Markets
A number of large European Cocoa companies have threatened to move their hedging business from LIFFE (London International Financial Futures and Options Exchange) to ICE (The former New York Board of Trade) unless LIFFE implements controls to limit speculative trades.
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Cocoa Prices – The Continuing Saga
The roller coaster of cocoa prices continues. Since the December 16 high of $3,636/ton, cocoa prices have dropped by almost $600/ton as measured by the ICCO Daily Price. There hasn’t been much in terms of news that might warrant this decline. Yes, production in the current year is higher than previously expected, but the surplus of 80,000 tons (as predicted by the ICCO according to a Bloomberg article) isn’t very much in light of previous four years of deficits.
Invisible Hand Is Confused
For anyone believing in the power of markets to accurately predict the future, this week was a challenge. On Wednesday, Business Week reported that cocoa prices were dropping on “concerns supply will outpace demand.” Cocoa butter has been piling up in Europe with stocks reaching 50,000 tons. Inventories in NY are rising as well. Finally, a bank projection puts the production of the top three growers (Côte d’Ivoire, Ghana and Indonesia) at 2.59 million tons, about 160,000 tons more than last year. So the speculators got out of the game.
Ghana Increases Producer Price Again
My first post in the new year reports some good news for Ghanaian cocoa farmers. On January 8, Ghana’s Cocoa Board increased producer prices from G¢2208 ($1,530) to G¢2400 (1,663) per ton.
