Ghost contracts and market movement. How hedge funds caused cocoa prices to soar

Prices have doubled compared to the previous year due to the successful speculation by hedge funds. Meanwhile, the conditions of plantation workers remain unchanged

Cocoa, how much do you cost us? Quotations are through the roof, with talk of over €5,500 per ton: blame it on so-called hedge funds, speculative funds, namely those private investment funds aiming for absolute returns, regardless of market trends. In the cocoa market, these funds have built a bullish position of over €8 billion. How? By buying futures, forward contracts that commit to buying cocoa in the future at a predetermined and higher price.

The cocoa costs more and more

Hedge funds are not the direct cause of the price increase, explained Martijn Bron, the former global head of cocoa trading for Cargill, to the Financial Times, shedding light on the issue: in a low liquidity market, speculative funds can, however, "amplify market movements fundamentally justified to extreme levels."

A successful bet, the one on cocoa, whose price in London has exceeded £4,757 per ton, double compared to 2023. Certainly, it won't be the growers benefiting from these increases, at least not until October, when payments will be adjusted based on raw material prices.

The chocolate crisis

Not a particularly happy moment for the sector, considering the environmental emergency affecting plantations, which risks making chocolate disappear: a Time article warned readers about the future scarcity of the product, considering that access to cocoa will be more difficult and costly, leading to "an increasing number of companies focusing on alternative chocolates." The reason? Deforestation caused by high demand for raw materials worldwide, which has prompted producers to opt for increasingly intensive agricultural practices to increase income at the expense of the environment.