Cocoa’s Drop Pressures a Big Wager

| August 27, 2010 | 0 Comments


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%.

Two hedge funds run by Armajaro, including its CC+ Fund, which focuses on cocoa and coffee, lost about 6% of their value during the first two weeks of August, according to investors who have viewed the returns. And since then, prices have continued to decline, suggesting Mr. Ward could be coming under more pressure.

It isn’t certain the drop in cocoa is to blame for the recent losses. And some analysts say the recent decline in prices may be short-lived. An Armajaro spokesman declined to comment.

The funds remained up about 12% on the year through the middle of August, the investors say.

Mr. Ward, a 50-year-old trader, has gained a level of prominence in the commodities markets, having made big bets on cocoa at least twice before, in 1996 and in 2002.

Farmers work on cocoa pods at a farm in San Pedro, Ivory Coast, earlier this month. Cocoa prices have fallen since a large purchase in July. (Reuters)

Armajaro in July took delivery of 240,100 metric tons of the commodity—accounting for almost all the cocoa stored in approved commodity-exchange facilities across Europe, and totaling about 7% of the world’s cocoa supply.

The purchase was the second-largest delivery of cocoa beans on record, according to figures from ABN Amro, ranking only behind Mr. Ward’s 1996 strike.

Around the time Armajaro took possession of the cocoa in July, cocoa prices had reached 33-year highs amid worries about wet weather in the Ivory Coast, the supplier of 40% of the world’s cocoa.

Armajaro bet supplies out of the Ivory Coast would dwindle, driving prices even higher.

But instead, the weather has improved markedly, and optimism is growing that the next Ivory Coast crop will be plentiful. That has coincided with concerns that a weaker economy could hit demand for chocolate in the U.S. and Europe. There are signs Asia-based processors that provide cocoa butter to some developed markets have reduced production recently, according to a person familiar with the matter.

Cocoa prices have fallen 11% since the end of July on the NYSE Liffe exchange. They settled Thursday at £2,021 ($3,122) a metric ton. Prices are down 10% for the year.

The situation could easily turn in Mr. Ward’s favor, either because of supply shortages or increases in demand. For instance, political tension has been roiling Ivory Coast for years, and elections are to be held at the end of October, introducing the potential for short-term disruptions.

It isn’t known whether Armajaro has sold some or all of the cocoa it bought in July. Armajaro also hasn’t disclosed the price at which it started buying the beans.

Mr. Ward’s funds are volatile, so they could stage a rebound after the recent setback. One Armajaro fund scored gains of 18% in June of this year after losing more than 12% in February.

Mr. Ward has made money on cocoa in the past. His 2002 cocoa play netted him $17 million on a £300 million purchase, according to news reports at the time.

While Armajaro runs a hedge-fund business, with about $1.7 billion under management, it also is a large player in the physical market for cocoa beans. It buys cocoa in Ghana, Ivory Coast, Nigeria, Indonesia, Malaysia, Vietnam and Ecuador. It then sells that cocoa to processors. The group employs more than 1,000 people, according to its website.

Mr. Ward started Armajaro in 1998 as a cocoa merchant and later moved into asset management, opening his first commodities fund in 2004, he said in an interview posted earlier this year by Opalesque, a website that provides news about alternative investments.

Opalesque TV (insert), Reuters

Anthony Ward, inset, in an interview with alternative-investment website Opalesque, in January touted his weather data. His bet on wet weather hurting Ivory Coast cocoa supplies has become cloudy as the forecast improved. Here, workers carry bags of cocoa in San Pedro, western Ivory Coast, earlier this month.

“Pretty much all of you around the world will have had product that’s been sourced by Armajaro,” Mr. Ward said in the interview, of the firm’s cocoa- and coffee-supply business.

The firm puts a premium on data about the weather because of its potential to affect crops, and therefore the balance between supply and demand, he said. “We invest hugely” in weather data, Mr. Ward said in the interview. “We even have our own weather stations, our very own, that no one else has, in some parts of the world.”

—John James in Abidjan, Ivory Coast, contributed to this article.
Write to Gregory Zuckerman at and Liam Pleven at

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