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Hedge Fund Corners the Cocoa Market
That Hershey bar you’ve been sneaking out to buy on breaks is about to cost you a lot more. London based Anthony Ward’s Amajaro hedge fund built up a billion dollar long position in the cocoa futures market which traders expected him to unwind going into expiration. To the absolute shock of investors and industry insiders alike, he took physical delivery instead of 240,000 metric tonnes of the delectable soft commodity, about 7% of the world supply.
The move triggered some extreme volatility in the markets. The difficulties of transporting and storing this quantity of a perishable commodity boggle the mind. Ward, a long time successful cocoa trader, is clearly taking advantage of a poor crop this year in the Ivory Coast, a major producer, betting on a price rise. The move was so unexpected that traders and big consumers, like Cadbury and Nestle, have been caught short. Although these giants hedge their requirements years in advance in the futures markets, no one expected this amount of product to be taken off the market so quickly.
Speculation is rife about secret hedges, under the table contracts, or other back room deals. Ward was able to accumulate such a large stake because the UK’s LIFFE lacks the position limits in force in the US markets. The affair takes one back to the days of Jesse Livermore in the 1920’s, whose shenanigans earned him the sobriquet of “Mr. Cotton”, as well as the Hunt Brothers’ maneuverings in 1980 which took silver to a staggering $50 an ounce (today it is $17.85). The fabled economist John Maynard Keynes once rented all the available warehouse space in London to avoid taking delivery of a bad position in copper.
Traders are now split as to whether Ward can join this illustrious company by pulling it off, sending prices through the roof, or failing miserably, and see his position dumped in the market at distressed prices. His investors are certainly praying that the newfound penchant for chocolate by the rising Chinese middle class continues to grow. If you want to get involved, and you might consider taking a long nap before you do, you can trade the cocoa ETN (NIB). Come to think of it, I better start stockpiling a hoard of chocolate boxes for next Valentine’s day while prices are still low.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “Hedge Fund Radio Archives” in the upper right corner of my home page.
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So can someone enlighten me... how does this moron's actions serve capitalism and the common good? It may shock some people on here to realize that making an "excessive" level of profit is immoral.
It is this type of self-serving behavior that has created the mess that we are in.
Maybe he has a use for it - wouldn't make much sense to take delivery unless there was some other deal occuring. Unless it was a horrid mistake (unlikely) such as this poor trader who took delivery of 28,000 tons of coal:
http://thedailywtf.com/Articles/Special-Delivery.aspx
I've seen a brief story done on the Mr. Ward and he didn't seem to be off his rocker...
No disrespect, but the Cocoa chart does not look too good. 50% retracement at this level with more looking likely. NIB was 46 shortly after the news hit, now at 41. This guy is now sitting at 7% of the market at a loss. WWYD?
+1
old 'news', it has been very entertaining watching the price action since this was first announced.
I have to say, if I was attempting to corner the market in a commodity, I wouldn't choose something that grows on trees...........
A practise run for silver maybe ?
Probably a money test. Countries are starting to settle debt in Ginger root and other stuff. Anything to bypass the International Bank of Settlements before it goes nuclear. But since choclate melts at 90 degrees farenheit this is going to be some bad money.
Ok educate me.
Why would Nestle and and Cadbury be net SHORT cocoa? Wouldn't they be purchase cocoa contracts for future delivery since they will consume it in the future and want to lock their price in?
So, MHFT..., are you recommending a play on cocoa, or recommending we take a nap and re-visit it in Dec.?
Always a good idea to hoard chocolate LOL