A hedge fund manager has bought 240,000 tonnes of cocoa beans in a £650m investment which would enable him to make more than 5 billion small chocolate bars. The hedge fund, Armajaro, has taken the unusual step of taking delivery of the cocoa beans and will store them in warehouses in England and the Netherlands.
Why?
- The price of cocoa has risen sharply in recent years due to increased demand - a 16% increase in the last year alone due to decreased production of cocoa beans in Africa.
- By having a degree of control over the supply, you can squeeze the market and push the price up. When you feel the price has gone up sufficiently, release the supply and make a massive profit.
This type of market speculation is common in food markets, coffee and wheat where speculators push up prices. Farmers, seeing the increased prices, could end up growing the wrong crops only to make a loss when withheld supplies are released and prices start to fall.
