Saturday, July 31, 2010

Cacao: Lucrative Commodity Du Jour?

While the reading economic powers around the world are busy searching “creative” ways to stimulate our post credit crunch economy, has cacao unexpectedly become the speculative commodity du jour?

By: Ringo Bones

With the world’s leading economic powers are now busily printing money like there’s no tomorrow in order to lower the cost of borrowing money to stimulate our post credit crunch global economy. Seasoned investors have now resorted to commodities speculation as a hedge against the resulting inflation brought about by the widespread availability of cheap money. But is cacao – the raw material for chocolate making that had recently reached a 32-year price high the lucrative commodity du jour?

Though the moral hazards of commodities speculation has been around since there had been commodities speculation, there is also that risk of generating a hyper-inflated commodities bubble – as in a chocolate bubble. Anthony Ward, CEO of primo Mayfair street chocolate maker Armajaro has not just only recently earned the moniker “Choc Finger” but also been dubbed by the press as a real-life Willy Wonka when he used his company to single-handedly cornered the global chocolate market by spending 600 million dollars to buy a significant portion (7%) of the world’s “strategic” supply of cacao – the raw material for making cocoa and chocolate. Reminiscent of what the Hunt Brothers did during the late 1970s of cornering the silver market, Ward almost single-handedly managed to send the price of cacao on a 32-year price high. But is this “speculative” move economically viable in the long run?

At present – i.e. July 2010 – commodities are still a very attractive investment because they provide a very reliable hedge against the inevitable inflation resulting from the stimulus packages initiated by most governments around the world – i.e. lowering the cost of borrowing money. Unfortunately, commodities on our present austere fiscal environment of a post credit crunch world would make them a relatively thin market for the “foreseeable present”. The international commodities speculators –assumed that Anthony Ward had recently discovered a sort of commodities speculators’ “gold mine” at cacao attempted to mirror his move. Unfortunately this caused the chocolate bubble to burst – cacao commodities prices diving a precipitous 7% during the week of July 19 to July 23, 2010. Will cacao prices go any lower?

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