This title is lost on those who have never played "Pit", but maybe you've seen "Trading Places". Anyhoo, somebody is choking the chocolate market. It turns out to be a guy named Tony Ward.
Big action in chocolate: Somebody bought almost all of the cocoa registered in European warehouses last week.I thought we had left those days behind us, but perhaps the staggering amounts of loose money wandering the globe like buffalo herd will cause more market-torturing excursions of volatility as frustrated investors look for a play.
The buyer, according to the FT and the Telegraph, was a company called Armajaro, which runs several hedge funds and sells cocoa to the chocolate industry.
The purchase — 240,000 tons, worth about $1 billoin — amounts to about 7 percent of global annual production of cocoa. So it's not like the hedge fund can immediately turn around and control the global price of cocoa.
But if this year's cocoa harvest is weak, the buyer could have significant pricing power, Laurent Pipitone of the International Cocoa Organization told me today. [More]
Unfortunately, for Mr. Ward, when guys like me in farm country know about it, you usually lose.
However, Mr. Ward and company made a serious mistake by allowing word to leak about the operation. Rule #1 when it comes to market manipulation is secrecy. If rumors of your operations become known, the market will start to turn against you. Hedge funds in particular will start shorting cocoa because they know that if they can force heavy losses for Anthony Ward, at a certain point, he will be forced to sell his entire position for a steep loss. This will in turn cause cocoa prices to plummet as everyone tries to get out ahead of Ward and company. We might already be seeing this happen considering today's action in the cocoa market. Cocoa prices are down 5% as the market digests this recent news. It seems the market is going against Mr. Ward. Will this end well for Mr. Ward? We don't know yet, but if history is any guide, it probably won't. [More]Maybe the ol' Internet is the the best regulator of all.