On 14 July 2010, cocoa prices on futures market reached their highest level since September 1977, climbing to 2725 pounds per ton (more than €3,270).
The reason for this remarkable peak in prices? One speculator. Not several, just one single speculator. Against a background of poor crops in Africa, Anthony Ward, chairman of UK commodities hedge fund Armajaro was able to get his hands on nearly 240,100 tons of cocoa in July, the equivalent of 7% of world cocoa production, 15 % of global stocks and 25% of estimated European stocks.
The objective was clear: dry the market, create scarcity, drive up rates and sell at high prices; a well-known ploy in speculation, known across the Channel as a squeeze or a corner. This is not Anthony Ward’s first stunt. In 2002, the cocoa market specialist drew attention to himself with the express acquisition of 204,000 tons of beans. It earned him 47.4 million euros when sold two months later.
All completely "legal"! Following this recent manoeuvre, NYSE Liffe which operates the London based cocoa exchange stated in a letter published on 21 July in the Financial Times that according to their investigation “there is no evidence of abusive behaviour or that any market participant is trading with the specific purpose of distorting the price of the July 2010 delivery month” (sic)!
It is now, more than ever, necessary to reinforce the trade rules that govern agricultural markets. Today, one crafty speculator alone controls almost 10% of the world production of cocoa and 15% of global stocks. What would happen if tomorrow, one or more speculators agreed to take control of 10, 20, 30% of the global wheat market? The food staple on which nearly half the world’s population directly depends!
At a time when more than one billion people suffer from hunger in the world, it is unacceptable that futures markets where agricultural commodities are traded can be used as a playground for speculators looking to play financial poker. It is imperative that the international community takes measure of the risks that unregulated speculation poses to world stability and implements regulations and effective overseeing bodies to eliminate this threat.