Cargill Is Behind Big Trade That Rattled the London Cocoa Market

The world’s largest agricultural commodities trader is behind a sharp move that upended the London cocoa market.

(Bloomberg) — The world’s largest agricultural commodities trader is behind a sharp move that upended the London cocoa market.

Cargill Inc. has been building a dominant position in the market since earlier this year, resorting to the ICE Futures Europe exchange to source large amounts of the key chocolate ingredient, according to people familiar with the matter, who asked not to be named because the information is private. Buying more beans through the futures market this month would further cement that position.

The trade comes as two years of shortages dramatically reduced stockpiles, with a measure of reserves relative to consumption falling to the lowest level in almost four decades. Supplies in the physical market are so tight that attracting cocoa beans to be delivered through the exchange requires a large premium.

That’s exactly what happened in this case. Cargill’s move left traders who sold futures scrambling to find enough cocoa to deliver when July futures expire on Friday. That sent the July contract to a premium of as much as £240 ($314) a ton to September.

Cargill declined to comment.

The trade, albeit different, is the biggest since hedge fund manager Armajaro Asset Management LLP’s Anthony Ward tried to corner the market more than a decade ago, taking one of the largest-ever deliveries of cocoa in London. The so-called squeeze, which earned him the nickname “Chocfinger,” sent July futures to an even bigger premium to September.

Much has changed in the market since those days. Ivory Coast and Ghana now sell most of their crop before harvest starts, leaving few sales to be done in the spot months. That means earlier-dated contracts tend to see less selling pressure than forward ones.

Cocoa’s OPEC

The top producers also charge $400 a ton over the futures price for their beans. The fee was introduced a few years ago to boost farmer income in a cartel-like move that has led to them to be dubbed the OPEC of cocoa.

All of that means beans that back exchange contracts tend to be the cheapest around. For more to be brought to the bourse for delivery, the price of earlier dated contracts has to rise to a level that’s similar to what’s being charged in the physical market. 

There may be several reasons why Cargill is buying cocoa through the exchange. The Minneapolis-based company is the world’s second-largest processor and it may need the beans to keep its European factories running.

Global cocoa production has already fallen short of demand for two consecutive years, depressing the global stocks-to-use ratio to 32.2%, the lowest since the 1984-85 season, according to the International Cocoa Organization. To make matters worse, an El Nino weather pattern is currently threatening to disrupt supplies from the next crop in West Africa.


Cargill took delivery of almost 140,000 tons of cocoa when the March and May contracts expired in London, according to people familiar with the deals and exchange data. That’s about the size of the global deficit the ICCO has forecast for the current season that ends in September.

But the trader also lost some beans due to a fire at a Vollers Group GmbH warehouse in Amsterdam in April, people familiar with the matter said. 

It’s unclear how much cocoa Cargill could buy this month, if any. The July contracts premium has all but vanished quickly in the past four days, and exchange data currently points to a small delivery of about 7,000 metric tons.

In 2020, Hershey Co. also bought a large amount of cocoa through the exchange, a move that rattled the New York market. Back then, the move sent December futures to a huge premium to the next futures contract.

–With assistance from Dayanne Sousa, Mumbi Gitau and Megan Durisin.

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