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Thread: Cocoa's Drop Pressures a Big Wager

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    Default Cocoa's Drop Pressures a Big Wager

    We interrupt your regularly scheduled macroeconomic opinions to bring you some trading news

    Anthony Ward's huge cocoa bet could be melting away.
    Mr. Ward's Armajaro Holdings Ltd. shook up the commodities market in July by buying a $1 billion cache of cocoa, enough to make 15 billion Hershey's milk-chocolate bars. But since Mr. Ward made his audacious bet, cocoa prices have dropped 26%.
    http://online.wsj.com/article/SB1000...349605640.html
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Default Re: Cocoa's Drop Pressures a Big Wager

    ^^^ history definitely has a way of repeating itself, doesn't it !



    However, while it would appear on the surface that Armajaro's investors took a pounding, there is really no way to know if this is true or not ... based on past profits earned from rising spot cocoa prices versus earlier futures contract prices. But what IS certain is the fact that every cocoa processor ( like Cargill ) made money on the spread, and that every Chocolate maker ( like Hershey ) was able to pass on a retail price increase ( or shrunken quantity at the same price ) thus boosting their profit margin.

    Now that cocoa commodity prices are falling back to less 'manipulated' levels, do you think that the Chocolate makers will drop prices or enlarge chocolate bars again ? Not a chance !

    The 'gold foil hat' crowd would tell you that this entire episode may have been orchestrated - and actually may have resulted in every party involved in the cocoa / chocolate market ( except the retail customers of chocolate products ) coming out a long term winner ! After all, even with the recent steep drop, cocoa prices are still at significantly higher levels than where they were at early last year !

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    Default Re: Cocoa's Drop Pressures a Big Wager

    People were saying that petrol retailers were taking advantage of surging oil prices back in 2008. Maybe they got locked into suboptimal hedges on the way up. Who knows. Can't say much without knowing who was on the other side of this guy's trades.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Default Re: Cocoa's Drop Pressures a Big Wager

    ^^^ yes, precisely !

    The simple fact is that the commodities markets are extremely 'opaque' as compared to the stock markets. Also, the commodities markets essentially form a 'closed loop' between commodity producers, commodity users, and commodity investors which is not the case with publicly traded companies versus customers of those companies' products versus investors in those companies stock shares.

    And to make matters worse, unlike the stock markets where it's supposed to be illegal, in the commodity markets the practice of naked short selling ( i.e. selling promises to deliver a commodity that you don't actually own and that may not actually exist at all ) is fairly widespread. Thus this guy might actually be working BOTH SIDES of his own trade - arbing his futures versus his spot ! In other words, this may not have been a 'wager' at all, but a deliberate calculation !!! Lots of things have changed from the days of the Hunt Brothers !

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    Default Re: Cocoa's Drop Pressures a Big Wager

    Don't tell me - I used to be a commodities trader
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: Cocoa's Drop Pressures a Big Wager

    This goes to show only that speculation is risky, especially where politics, greed, and weather are primary factors.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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