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Change in commodity futures prices YTD May 8, 2020: Cocoa (-4.8%); Wheat (+3.7%); Maize (-17.5%); ICE Natural gas (-55%); Gold (+12.1%); Soyabeans (-23.1%); Cotton (-18.2%); Rough rice (+27.2%); Platinum (-18.5%); Arabica coffee (-15.1%); Brent crude oil (-53.3%); Copper (-14.6%); Sugar (-23.3%);     Whilst Africa's growth in 2020 could fall to its lowest since the 2008/9 global financial crisis, the asymmetric nature of shocks facing the region, coupled with increasing investment and cross-border trade, should help the region recover speedily.

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July 24, 2021

Cocoa: It’s a complete mess at the moment, but whodunnit?

For anyone currently watching cocoa markets, this statement might sound familiar: “It’s a complete mess at the moment. I wish Ghana and Cote d’Ivoire would talk and listen”.  

But why the accusatory stance on these producing countries?

Cut to the chase and US chocolate-maker, Hershey’s, is expected to take delivery of a large volume of cocoa on the futures market, creating a squeeze with the trappings of Armajaro’s chocolate finger just over a decade ago.

All Rise! Applause! Applause!

At least one analyst has seen the smart play in Hershey’s trade. Not least because it circumvents the country premium which importers are now reluctant to pay in addition to the $400/tonne Living Income Differential (LID) imposed this season by Ghana and Cote d’Ivoire, who jointly account for over 60% of global cocoa production.

Arguably, procuring beans through the exchange offers a 50% discount on the LID! And, admittedly, the difficulty in converging the physical trade with the futures market, occasioned by the LID has raised tensions and have cocoa importers scratching their brows.

But in our opinion, the cocoa trade has become a ZERO-SUM game.

Efforts by Hershey’s, which by our very rough estimates accounted for around 200,000 tonnes of US cocoa grinds in 2019, have served to spook futures and the liquid March 2021 cocoa contract has risen over $335/tonne in the week ending 20 November.

Now, consider the circular reference to futures prices inherent in the physical market price, and could it be that the trade just got played?

DEC20 cocoa


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One Response “Cocoa: It’s a complete mess at the moment, but whodunnit?”

  1. Paul Davis
    November 29, 2020 at 06:11

    The cocoa trade definitely got played but by setting the lid so high and refusing to verify it certify the premium that is actually financed and paid for by the trade. It means that chocolate industry and others can circumvent and some may just be able to cheat the system.
    They may sound irrelevant to some, as ‘who cares about the trade? ‘ But these are the firms that have always been prepared to buy forward, take risk and provide the substantial liquidity required that serves a crucial function in supporting the only two successful internally stabilised cocoa markets in the world.
    That forward liquidity is fast drying up and unless the origins talk to the right people in the trade the cost if the lid may be the end of stabilisation. Which is in no ones interest.

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