Cargill’s cocoa and chocolate business has launched three tools to help customers manage cocoa price volatility.
The company’s CocoaPacer, CocoaPacer Cap and CocoaRange Cap are designed to help protect customers from instability when pricing their cocoa ingredients.
“For example, they can offer protection within ingredient purchase contracts against sudden increases in cocoa prices, yet preserve the potential benefit of a discount if the price falls before physical shipment,” said Cargill in its release.
Cocoa prices reached highs of $3,500 per metric ton at the height of the global recession in 2009, according to the International Cocoa Organization’s (ICCO’s) monthely averages of daily prices. Current prices are around the $2,500 per MT mark.
Coping with uncertainty
Cargill’s customer risk manager Tom King said: “Because of continued cocoa price volatility, many food manufacturers are coping with extraordinary uncertainty when managing price risk exposure to cocoa and chocolate ingredients.
“We feel that, by combining our risk management discipline with our knowledge of the cocoa and chocolate sector, we have developed a consistent and methodical approach to managing price risk that is of real benefit to our customers.”
How does it work?
The protective structure plans work to mitigate risk. Under CocoaPacer for example:
- Manufacturer selects a pricing period and reference futures contract.
- The recorded price will be the Closing Settlement Price for each valid trading day
- The CocoaPacer price will be established based on the average of all
- recorded prices
- The cost of the structure will be added to the commercial ratio.