44737
From: chatillon, [DNS_Address]
Subject: Uh-Oh. Cocoa.
URL: https://www.japantimes.co.jp/business/2024/03/29/markets/cocoa-rally-market-breaking-point/
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Cocoa market 'broken' as crop failure drives third year of shortages Dried cocoa beans at the Somos Cacao farm and production in Ragonvalia, department of Norte de Santader, Colombia, on March 22, 2024. Cocoa is the best-selling commodity in the world so far in 2024, and futures have doubled in less than three months as poor harvests in West Africa, where most of the world's cocoa is grown, have led buyers to look elsewhere for supplies. | BLOOMBERG BY ISIS ALMEIDA, ILENA PENG AND DAYANNE SOUSA BLOOMBERG SHARE Mar 29, 2024 The global cocoa market is buckling under the strain of unprecedented shortages. A once-unimaginable rally that upended physical trading is now filtering rapidly through to the futures market. Prices that have more than doubled in just three months are forcing traders, processors and chocolate makers to stump up more cash to cover their trades or head for the exit. That’s raising the specter of company failures like the ones that plagued European utilities during the recent energy crisis, when gas prices spiraled out of control and governments were forced to bail them out. There are fears it could be worse — some traders are even alluding to a nickel-type meltdown that rattled the London Metal Exchange. "It’s hard to understand the magnitude of the price rise, with panic in the physical market and lack of performance by suppliers due to the crop failure being the driver,” said Pam Thornton, a veteran commodity trader at Nightingale Investment Management, who’s best known for her role at former cocoa hedge fund Armajaro Asset Management. "When you have moves of this magnitude, there are usually casualties and I’m amazed I haven’t heard of any yet.” Cocoa futures have surged as poor harvests in West Africa, where most of the world’s beans are grown, sparked a third year of shortages. There’s a risk the crunch could be long-lasting, with climate change and crop disease ravaging trees and concerns mounting that production in Cote d'Ivoire and Ghana has entered a period of structural decline. Prices in New York are heading for their best month ever, and there are already signs of stress building across the industry. Boxes of assorted Hershey chocolates Boxes of assorted Hershey chocolates | BLOOMBERG Switzerland’s Barry Callebaut, the largest maker of bulk chocolate, said in January it expected "an industry-wide impact on working capital requirements.” It said it addressed the concern by issuing 600 million Swiss francs ($663 million) in bonds to refinance securities due in May, as well as increasing a credit line and securing another loan. While Barry Callebaut’s shares have dropped by about a third in the past year, investor Artisan Partners Asset Management has just increased its stake, expressing longer-term confidence in the company. Acomo, owner of Dutch trader Tradin Organic, said last year’s earnings were "materially impacted by the unprecedented increase in cocoa prices, resulting in lower demand and hedging losses.” Chocolate companies are also feeling the pinch, with BNP Paribas Exane downgrading Hershey due to surging costs. Bean shortages Scarce supplies first sparked a race to secure beans where they’re grown. In Cote d'Ivoire, many traders and processors rushed to source supplies by paying farmers more than the prices set by the government. Others have turned to smaller producers like Ecuador and Indonesia, but it won’t be enough. Barry Callebaut expects a deficit of about 500,000 tons this season, equal to about a 10th of the global market. The firm, a supplier to the likes of Mars and Nestle, predicts another shortfall of 150,000 tons next season. Chocolate prices are rising everywhere as cocoa rots in west Africa | BLOOMBERG The shortages are roiling the futures market. As prices rise, traders with short positions — including those who’ve sold futures to hedge against physical holdings — have to come up with more money to pay margin calls, which work as an insurance policy to cover potential losses. Those who can’t are forced to buy back contracts, pushing up prices further and creating a vicious circle. That’s exactly what happened in the gas market when Russia began restricting supplies to Europe. Prices spiraled out of control and companies started to fail one after another. German utilities including Uniper and the former European trading and supply unit of Gazprom had to be rescued. In nickel, a runaway short squeeze centered on the world’s top producer in 2022 created so much market stress that it put others at risk of failing too. But unlike the London Metals Exchange (LME), Intercontinental Exchange (ICE) is unlikely to intervene and halt cocoa trading to protect those vulnerable in the market. ICE has however taken several steps to tame the rally and keep the London and New York markets orderly. The bourse increased margins several times this year and reduced the threshold for when market players need to disclose more information about their positions. In London, where Cote d'Ivoire and Ghana hedge their sales, the exchange is gradually cutting the amount traders can buy through its market. The so-called delivery limit is going from 75,000 tons in May to 50,000 tons in July, and down progressively until it reaches 25,000 tons for the December contract onward. "It is a moment of great uncertainty, and the exchange measures are to avoid the market from being even more squeezed,” said Leonardo Rossetti, an analyst at brokerage StoneX. Exchange role ICE Futures Europe President Christopher Rhodes said the cocoa market is serving its function as a venue to manage price risk, and pointed to speculators curbing their positions. "Derivatives markets facilitate price discovery, allow customers to manage their risk, and serve as a buyer and seller of last resort,” he said in a statement. "These principles are especially important when the underlying demand and supply fundamentals change, as we are seeing in cocoa.” With beans harder to come by, agricultural trading giant Cargill recently turned to exchange supplies to source cocoa. The U.S. merchant took delivery of 75,000 tons, the maximum allowed, when the March contract expired in London. "We do intend to use a part of those beans to offset some of the shortages of fresh cocoa from our suppliers in West Africa,” said Job Leuning, Cargill’s head of cocoa trading. "We are keen to continue offering our customers the cocoa and chocolate products that they need in 2024.” Cocoa continued to soar after Cargill took delivery and if the company does use the beans, it will further pressure already low exchange-certified stockpiles. Replenishing inventories won’t be easy as new European Union rules due to kick in at year-end will require companies to show crops haven’t come from deforested land — something the industry is still struggling with how to prove. The EU has faced calls to delay the deforestation regulation, and cocoa futures could drop significantly if the deadline is pushed back. Some traders also say that the rally to more than $10,000 a ton — a higher price than copper — may be enough to curb demand. Tough environment For now, the high costs are hurting processors, with factories in West Africa slowing down or shutting. Blommer Chocolate is closing its 85-year-old Chicago chocolate plant as the facility is no longer efficient. Barry Callebaut, which began a reorganization before the rally took off, has cut 18% of its workforce. It plans to close a German factory and a facility in Malaysia. For everyone in the market, the spike higher has been accompanied by huge volatility, with a gauge of price swings near the highest in more than a decade. "The cocoa market is currently not a confectioner’s comfort zone,” said Tristan Fletcher, CEO at ChAI, a platform that uses AI to analyze commodity markets. "It’s a battleground for those with a taste for volatility.” Focus is now turning to West Africa’s new harvest, though supplies will probably only start to ease next year after farmers have had time to react to higher prices and improve production. Another key question is how much supply is being held back in anticipation of the rally continuing. Until more supplies arrive or demand craters, the industry should brace for a tough market and potentially higher prices — especially with liquidity in the futures market drying up. "All the dealers I talk to, somewhere in the middle of the conversation, I hear that the market is broken,” Nightingale’s Thornton said. "I am talking about the overall market being broken, especially physical trading, as counterparty risk and financing has become impossible to manage.” This article originally appeared in The New York Times © 2024 The New York Times Company |
44738
From: Redhart, [DNS_Address]
Subject: Re: Uh-Oh. Cocoa.
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nooooooooo! Not the chocolate! This is definitely a full crisis. |
44739
From: Chuckles, [DNS_Address]
Subject: Re: Uh-Oh. Cocoa.
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I miss the 10 LB Ghirardelli Chocolate bars that Trader Joe's use to sell years ago around the holidays. I would break it up and give to Family and friends. I believe the bars cost around $19 something back in the 90s. When at Costco first thing this morning, people were reaching for the Kirkland brand chocolate chips with the container box closed to being empty, almost bought some myself, but my wife doesn't want me making my deli style chocolate chip cookies anymore for at home as it's too tempting for her, but she does have me make them for employees and fundraisers at her work. |
44741
From: Redhart, [DNS_Address]
Subject: Re: Uh-Oh. Cocoa.
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when I was little, we lived in the SF bay area. Every Saturday was mom's day off...to get hair done, go shopping with friends, whatever. Dad would always take us somewhere interesting. One of the places I remember was driving up to SF and visiting Ghirardelli square...complete with their shop there. There were cocoa beans roasting through one window, and a vat of melted chocolate mixing behind a counter. We always got to pick a chocolate candy out before leaving (I usually chose the "Flicks"). It was such an exciting time in the city and the square. I remember seeing Shields and Yarnell doing their mime act in Ghirardelli square for a large crowd (before they got a tv show and became famous). There was "Trumpet man" who sat in a painted up refrigerator box and if you put a quarter in a slot, the front would pop open and he would play whatever song you requested. I remember those 10 lb bars! On our trip to Texas for Christmas, my 17 yr old grandson got a 10 pound Hershey's bar from a sister and he was smiles ear to ear. Brought back memories. |
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44740
From: Chuckles, [DNS_Address]
Subject: Chuckie Tahoe Famous Chocolate Chip Cookies Recipe
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1cup of butter 1cup of sugar 1cup of brown sugar 2 eggs 2 tsp of vanilla 3cups of flour 2 tsp of warm water 1 tsp of baking soda 1/2 tsp of salt 2cups of chocolate chips Mix soften butter together and sugars until well blended. Add eggs next with butter and sugar and blend well. Add vanilla, and then add warm water with baking soda and stir, and then add to mixture and blend well. Add slowly to mixture the three cups of flour with salt and blend into mixture. Finally add the two cups of chocolate chips. I make large deli style size cookies, and bake at 345 degrees for around 14 to 16 minutes depending on size of cookies. |
Responses:
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