Today’s news that cocoa prices have risen over 7% as a result of the export ban imposed by Ivory Coast has prompted me to look at the softs again as prices in this sector may be one of the key drivers for inflation later this year which in turn will impact on the broader market and could determine the longer term outlook. The dramatic rise in cocoa is hardly surprising given that Ivory Coast is responsible for almost 40% of the world’s supply of cocoa and last year’s poor harvest in Ghana has also been a contributor factor. However, one of the most interesting aspect of the cocoa market is that last year it was confirmed that Armajaro, a London based hedge fund, has taken physical delivery of 241,000 tonnes – the equivalent of almost the entire supply of the commodity in Liffe registered warehouses across Europe. Taking physical delivery of a commodity is very unusual as contracts are usually settled in cash but Armajaro, along with investors such as George Soros (and the ubiquitous Chinese) are all heavy investors in Africa and its natural resources. The reasons are obvious: a growing world population and weather patterns such as La Nina which is currently holding sway. La Niña (or little girl in Spanish) is a weather phenomenon which is causing havoc all over the world as it destroys crops and floods mines. It has already hit the price of soybeans, wheat and palm oil and is expected to last until at least April.
Meanwhile Nicolas Sarkozy plans to use France’s presidency of the G20 to tackle “volatility in commodity prices, exploring changes to the world monetary system and reforming global economic governance.” & that’s just before breakfast!