The price for cocoa is fixed by the London International Financial Futures and Options Exchange (LIFFE), which handles 75% of all cocoa contracts in the world. These include options that allow producers and consumers to hedge against sudden price moves.
One move occurred in the summer of 2010. After years of falling production and rising demand, the price skyrocketed to a 33-year-high. Rumors spread that someone had cornered the market. The usual suspect in the small world of cocoa traders is Anthony Ward of the London-based hedge fund Armajaro. Ward, the cocoa specialist of the finance house, is dubbed “Chocfinger” by fellow traders. Competitors believed Armajaro held 500,000 tons of cocoa in hand in the form of future contracts, which can be bought and sold against a deposit of as little as 2% of its value.
Whoever had bet on falling prices found no more physical cocoa on the market and watched losses mount until his broker’s margin call relieved him of his misery, and plenty of money. Squeezed out shorts had to cover their positions, at great expense. The funds went – if market rumors are to be believed – straight into Armajaro’s pockets.
Yet on July 15, 2010, rumormongers almost fell off their chairs. Contracts for 240,000 tons cocoa (equal to 7% of global production) fell due. Many had believed they would be rolled over since market corners prove notoriously difficult to unravel.
Armajaro, mentioned widely in mainstream media as the party involved, simply took delivery and left the competition speechless. Market insiders believe that Barry Callebaut brought the lot, though neither company has confirmed or denied the deal. The market manipulator, whoever it was, made an additional killing with September contracts comprising 200,000 tons, about $107 (€77) per ton, according to the International Cocoa Organisation ICCO. A complaint by the industry body to LIFFE amounted to nothing. For the exchange it was business as usual.
Events became further complicated in November 2010 when Ivory Coast voted. Alassane Ouattara was the winner but outgoing president Laurent Gbagbo, who had grown rich on his nation’s cocoa export, was reluctant to leave his lucrative post. Months of civil war ensued and thousands were killed. Ouattara, supported by the international community, placed an export ban on cocoa, disrupting the money flow of his predecessor. As supplies to markets became scarce, cocoa prices hit an all-time high of $3,770 (€2,448) per ton. When it became clear that Ouattara would prevail in April 2011, prices dropped 22%.
A question of temperature