Hedge Fund Attack: Mystery trader buys all Europe's Cocoa


The purchase was enough to move the entire global cocoa market, sending the price to the highest level since 1977, and triggering rumours and intrigue
in the City.

It is unclear which person, or group of traders, was behind the deal, but it was the largest single cocoa trade for 14 years.

The cocoa beans, which are sitting in warehouses either in The Netherlands, Hamburg, or closer to home in London, Liverpool or Humberside is equivalent
to the entire supply of the commodity in Europe, and would fill more than
five Titanics. They are worth £658 million.

Analysts said 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. By doing this, they would have
control of the entire supply in Europe, forcing the price yet higher.

Eugen Weinberg, an analyst with Commerzbank, said: “For one buyer it would likely be a little bit too large. It would be a crazy number. That said, if
you’re cornering the market ...”

“If it looks like cornering, feels like cornering and the price difference between Europe and the US is so large, it probably is cornering.”

“There is some play taking place. No one really knows what is going on.”

Andreas Christiansen, president of the German Cocoa Trade Association, said the “hefty” price move was “a mirror of what can be done if people control
the physical stock”.

Cocoa prices, which had been on the rise this year, rose 0.7 per cent yesterday, to £2,732 per metric ton. By contrast, cocoa being traded on the
US exchange fell.

This is the highest price for cocoa in Europe since 1977, and comes after a series of weak harvests in Ghana and the Ivory Coast, the main areas where
the crop is grown. Fears of floods in the Ivory Coast have sent prices even
higher, as speculators have bet on another poor harvest, and a shortage of

At the same time demand is on the increase, especially as China and India develop an ever sweeter tooth.

Cocoa prices have more than doubled since 2007, forcing chocolate makers to raise prices and in some cases to change recipes to use less cocoa.

Laurent Pipitone, senior statistician at the International Cocoa Organisation in London, said: “In the past two years, all companies have increased prices."

There are fears that the extraordinary activity on the commodity markets will filter down to higher prices on the shop shelves for the nation's favourite
chocolate bars, even milk chocolate, which has only 25 per cent cocoa

The trade took place on the London International Financial Futures and Options Exchange (Liffe), a market which trades contracts in commodities such as
corn, wheat, sugar, coffee and cocoa.

Most of these contracts are "options" or "futures" giving a trader the right to buy these commodities at a certain price at a certain
time in the future. What made yesterday's trade so unusual was that the
mystery buyer or buyers took physical delivery of the commodity.

The beans will be stored in one of Liffe's warehouses in Amsterdam, Antwerp, Bremen, Felixstowe, Hamburg, Humberside, Le Havre, Liverpool, London,
Rotterdam, or Teesside.

There have been mounting worries that speculators have been distorting the cocoa market in recent weeks, with brokers writing a letter of protest to
Liffe earlier this month.

Barbara Crowther, a spokesman at the Fairtrade Foundation, said that no farmers in West Africa would benefit from the higher prices. She said: "This
speculation only serves to increase volatility and uncertainty. Part of the
problems in rent years have been the lack of investment in improving cocoa
farms. But the farmers have already been paid a set price – none of this
money will filter down to them."

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