Back to Newsletter    
Commodity and Currency




June was also a volatile month for Cocoa Prices, which climbed again reaching multi decade highs. Generally this is driven by uncertainty about the economic situation and hence continuing skewing of commodity markets by speculators. The fundamental outlook is on the side of positive, however the short position for cocoa is tight and this has resulted in significant inverse forward positions.

Barry Callebaut have stated at the end of June that they expect cocoa prices to stabilise and stay within the range of 2100-2400. At least they are now supporting what we said in our April Newsletter!!

On the subject of Speculators, the following report from Reuters shows the level of dissatisfaction by various European Cocoa participants click here to see the letter referred to in this article....

05Jul10 -RPT-European cocoa players complain to Liffe on speculation
 (Repeats from Friday without changes)
   By Sarah McFarlane and Michael Hogan
   LONDON, July 2 (Reuters) - European cocoa industry participants, including trade houses and processors, sent a letter to the Liffe exchange on Friday complaining about the extent of speculation in the London cocoa market.
    The letter, signed by 16 organisations and seen by Reuters, said: "The cocoa industry cannot continue to trade on a futures market that is not offering a minimum of hedge transparency."
   "We will, therefore, be obliged to reconsider seriously our hedging policy and with an eventual move towards using the Intercontinental Exchange (ICE) market."
   NYSE Liffe declined to comment. On its website it said that as a regulated market, NYSE Euronext operates a fair and orderly market.
   Dealers said fund buying was the key driver behind London cocoa futures <LCCc2> hitting a 32-year high of 2,461 pounds a tonne last week, before easing back. LIFFE cocoa was one of the standout performers amongst all commodities in the first half of this year.
   The benchmark September contract closed on Friday at 2,378 pounds a tonne on volume of 3,542 lots. Each lot, or unit, represents 10 tonnes. Global annual cocoa production exceeds 3 million tonnes.
   At this time of year, market focus turns to the development of crops in West Africa, the dominant global cocoa producing region.
   Dealers said that while long-term structural decline in the output from the world's largest cocoa producer Ivory Coast was supportive of high prices, speculative fund buying had left the Liffe market looking overvalued.
   The debate over the influence and extent of speculative activity in commodity markets has intensified in recent years.
   In the letter, industry participants asked Liffe to explain why the open position on the Liffe July cocoa futures contract stood at more than 50,000 lots, less than two weeks before the contract's last trading day.
   Traders say that typically, within two weeks of a contract's last trading day the open position would be lower than this as most market participants would not want to take delivery of cocoa, opting instead to roll their position forward.
   London July cocoa is also trading at a large premium to September, which has seen activity on the physical market grind to a halt, as anyone holding cocoa stocks looks to deliver them to the exchange instead.
   In the week ended July 2 the July contract's premium over September widened to 177 pounds, from 104 pounds a week before. Typically, contracts become more expensive for dates further in the future to reflect the cost of storing the commodity.
   Organisations that signed the letter included the German Cocoa Trade Association, which has amongst its membership cocoa trading, broking, processing and warehousing firms.
   "We feel that the London exchange is losing its function as a price-giving market for cocoa for the European market and this will be further lost unless there is major action to steer against this," said Andreas Christiansen chairman of the German Cocoa Trade Association.



Prices remain stable at the moment although at higher levels than last year.



Sterling continues to improve against both the Euro and Dollar. From last months low of $1.43, the rate is now $1.51 and against the Euro just below €1.21.

Tony Mycock 5.7.10

Print the Article


HB Ingredients
Cocoa House, 22 Bell Lane,Bellbrook Industrial Estate,
Uckfield East Sussex. TN22 1QL.
Sales order hot-line:+44(0)844 32 44 499
Enquiries:+44(0)845 88 00 799 Fax:+44(0)845 88 00 833