The following story is about chocolate, but it has no sweetness in it. In the summer of 2010 the cocoa beans market found itself in the middle of the largest speculator attack in its history. According to “Der Spiegel” who covered the incident, the man behind this huge speculation that dramatically increased the price of chocolate in the world – was Anthony Ward , or “Chocolate Fingers” as they call him in the commodities market , a paraphrase to the legendary evil from James Bond films.
It was not the first attempt of Mr. “Chocolate Fingers” to control the global cocoamarket. In 1996 and in 2002, Ward made ??similar moves, while they did not buy him control over the market, they did roll hundreds of millions of dollars into his pocket. In June 2010 Ward’s activities came into climax: According to estimates of merchants, Ward bought about 50 thousand futures contracts in the extent of half a million tons of cocoa beans, when the entire annual market amounted to a modest extent of 3.5 million tons. Since the average cocoa price stood at £ 2,000 a ton, the speculator needed only £ 7 billion to control the entire market – small amount for a big investor seeking high yield in an unstable stock market.
Ward’s strategy was to create a shortage to raise the price of cocoa, and attract a wave of investors – that will increase the price even more. The timing of the purchase of futures contracts was chosen carefully: in June and July chocolate manufacturers tend to buy a large stock of cocoa to produce chocolate marketed for Christmas.
However, in the same moment it seems that Ward was going to manipulate the market for his own needs, cocoa beans price started going down. For the next four consecutive weeks it fell by 13%, and once it was seen that Ward’s plan was going to crash, an almost miraculous event occur: In November a brief civil war erupted in Ivory Coast, an exporter of a quarter of the global cocoa beans production. Cocoa price had bounced back, but no one – apart from Ward himself – do not know whether he made a profit, or escape by the skin of his teeth. To be sure, his next attempt will probably be in a much larger scale that could bring thousands of chocolate manufacturers and tens of thousands of industrial to lose their jobs.
Ward’s action was unusual, but it certainly reflects the ability of manipulative trading in the commodities futures markets. Trading resultsin rising prices that push tens of millions of people into hunger. It seems that money is the entire story. Since the rupture of the dot.com bubble in 2000 till today, the amount of money invested in the commodities futures market grows more then 50 times. In fact, in 2003 this market was still asleep, with a turnover of $13 billion, but with the arrival of the crisis in 2008 the food commodities market became an important docking point for hedge, pension and capital funds. In July 2008, this market has rolled a total of $318 billion.
The goal: making money
The numbers indicate that the food commodity market is the fastest growing investment market in the world. In fact, most of the money comes from those investors who invested in assets that evaporated in the explosion of the dot.com bubble and in toxic derivatives of the Sub-Prime mortgages. Everyone are in the business: from huge pension funds to private investors, their common denominator is the desire to make money, a lot of money, no matter if it’s a grain of wheat or rice, profit is the bottom line.
According to the global food price index – consisting of 55 goods belonging to five groups (meat, dairy products, cereals, oils and sugars) published by the Food and Agriculture Organization of the United Nations (FAO) – since 2005 until end of 2008, food prices climbed by 80% and reached an amazing record. If in 2000 the global food price index was of 90 points, in February this year the index reached a record of 238 points.
The results of this reality are destructive. The World Bank says that every increase of 10% in the food price index cause the download of at least another 10 million people worldwide below the poverty threshold. The situation was well described by the hedge fund manager Michael Masters, while testifying at a hearing before Congress in 2008: “we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets”. Virtual trading price of wheat grain controls its price in the real world. If in the past speculators accounted for only 20% of the market, and the rest were composed of entities and individuals who make a living from food production – now the ratio is 75% for the speculators.
The original article can be found here.