In terms of the market, boom and bust effects characterise prices in the cocoa cycle, estimated to roll out over a period of 20 years. Recently, demand pressurised supply lines, pushing prices for the valuable cocoa bean to crash through the $3000 a tonne barrier in June.
But since then, prices have undergone a general downward trend, closing to just under $2550 a tonne at the end of September on the New York (ICE) futures market , and £1495 a tonne at LIFFE in London.
Playing a key role in the dilution of price was the exit of non-commercial speculators.
"Indeed, the turmoil in the US financial market during the first two weeks of the month (bankruptcy of Lehman Brothers, sale of Merrill Lynch to Bank of America and the rescue by US Government of American International Group) and its subsequent impact on European markets, prompted non-commercial market participants to reduce their risk exposure in all assets, including cocoa," reports the International Cocoa Organisation in its monthly review released this week.
According to the ICCO, data released by the US Commodity Futures Trading Commission (CFTC) confirmed that non-commercial net long positions in cocoa "significantly dropped in the course of the month."
Speculators – from Wall Street to hedge funds – have been accused by observers of pushing up prices for commodities used widely by the food industry.
Earlier this month, ConfectioneryNews.com wrote that with an eye on the soaring prices of key food commodities in the past 12 months, investors have thrown billions of dollars at the commodity markets in a bid to make a quick buck.
Indeed, some have argued that this massive influx of funds actually played a role in pushing up global food prices for the food industry and consumers.
The UN's Food and Agricultural Organisation warned in May that "a key concern [for prices] is the participation of new agents that are perceived to be motivated by risk-diversification to the exclusion of serious assessment of price levels".
It added that "increased price volatility seems a plausible result give the volume of these non-commercial investments”.
Cocoa industry buyers
For cocoa, the buyers in the consuming countries are the processors and the chocolate manufacturers. A few multinational companies dominate both processing and chocolate manufacturing. Barry Callebaut is the biggest global manufacturer and distributor of cocoa, followed by US firms' Cargill and Archer Daniels Midland, and Swiss food powerhouse Nestle.
A reduction in price for their key commodity ingredient should bring some relief to the balance sheet of these cocoa-hungry manufacturers that have faced vertiginous prices in recent months for inputs ranging from logistics to milk.
Supply and demand situation
The ICCO writes in its September report that, according to news agency data, cocoa bean arrivals to ports in Côte d’Ivoire, the world's number one supplier of cocoa contributing 38 per cent of this soft commodity to the marketplace, reached 1.365 million tonnes in 2007/08.
In Ghana, cocoa purchases declared by the Ghana Cocoa Board reached 680,000 tonnes at the end of the official 2007/08 season (12 September 2008). In addition, 78,000 tonnes of cocoa beans were purchased in Ghana during the last three weeks of September 2008.