Remember when the gold & silver market broke in March? Well, the futures market for cocoa beans is blowing-up, and that’s not all…
(by Half Dollar) My family went out to eat last weekend.
Here were some of the delicious things we enjoyed, in no particular order:
- Beer & soda
- Chicken, salmon, shrimp, and steak
- Pasta, potatoes, and rice
- Salad, rolls, and etcetera
Now, of all the things we ate, guess which one had a “surcharge”, for whatever that means?
It wasn’t the meat, or the fresh vegetables, or even the beer, but rather, it was the pasta!
The freakin’ pasta!
It reminds me of the conversation I had earlier this month with a (sometimes) high-producing Kansas wheat Farmer, Brian Ochsner:
Not a lot of people watched that video, but they really should, especially if one eats and cares about rising prices.
But I digress.
In February of 2020, we learned that two nations, who together export 60% of the world’s cocoa beans, got together and formed a new “chocolate cartel”.
Of course they did, and while I’m not the sharpest tool in the shed, I’m pretty sure the intent is not to brainstorm ideas on how to bring cocoa beans to market cheaper, but rather, how to get even more money for their harvests.
In addition to that price pressure, over the summer, there was reporting that chocolate sales spiked during the lockdowns.
Anybody with eyes and access to a modern US grocery store or Walmart could see that.
Here’s an interesting Tweet from the National Confectioners Association showing the pick-up in sales:
Without a doubt, we can clearly see that just this year alone, cocoa beans, the principle ingredient in chocolate, have experienced increasing demand despite the price increases, and making matters worse, that pressure on the cocoa bean market from increasing demand and rising prices is notwithstanding the ongoing, persistent supply chain disruptions.
But wait, there’s more!
That’s right, because last Friday, in a piece of news that generally flew under the radar, with some additional, minimal coverage yesterday, November 23, we learn that Hershey Co is having to source its cocoa beans directly from the futures market!
Here’s more from that initial Friday story, from Bloomberg (bold added in all quoted sections for emphasis and commentary):
Hershey Co. is taking the unusual step of directly sourcing a large amount of cocoa through the ICE Futures U.S. exchange instead of buying beans in the physical market, according to people familiar with the matter who asked not to be named because the deal is private. The massive trade has sent December-delivery futures to a record premium over the next contract. The purchases were so large that they required special permission from the exchange, the people said.
In a similar but different kind of way, doesn’t that sound like what happened to the COMEX back in March, where the futures market, which has long since disconnected from the physical market, suddenly becomes a market for actual physical delivery?
And what if the cocoa bean market is subjected to the same manipulative shenanigans as the other futures markets?
Here’s the accompanying chart showing the spike in prices:
Something has clearly snapped!
Notice something else that’s interesting in the reporting from Bloomberg:
Hershey said it doesn’t discuss details of its buying and hedging activities and that it purchases cocoa from a variety of suppliers and sources to meet its needs. The Pennsylvania-based company said it has long supported initiatives to improve farmer livelihood and that includes Ghana and Ivory Coast’s Living Income Differential, as the $400-a-ton premium is known.
Ivory Coast and Ghana, which account for almost 70% of global cocoa production, started charging the premium for beans from the 2020-21 harvest that started in October. That came on top of a quality fee depending on where the cocoa comes from, and in some cases a sustainability surcharge.
In other words, about 70% of the world’s cocoa bean exports is now subject to as many as three different types of fees:
- Ghana and Ivory Coast’s Living Income Differential
- Quality Fee
- Sustainability surcharge
If that sounds anything, that sounds expensive.
Here’s the question: Will the corrupt US financial markets be able to deliver?
Here’s something I made note of yesterday in my weekly outlook (bold added for emphasis):
Does anybody else notice that nowadays, whenever any particular item goes “out of stock” in any particular store, whenever the item goes back into stock, the item always costs much, much more?
What happens if chocolate flies off of store shelves, and, more importantly, what happens to prices when grocery stores are finally able to replenish their chocolate offerings?
Here’s something else I said in my outlook yesterday (bold added for emphasis):
Call me crazy, or call me just the beneficiary of plain-old dumb luck, or call me whatever you want, but I do think the crack-up boom has begun, only, for now, it’s masked to specific items and not generalized.
Has the crack-up boom found its way into the chocolate market?
I think it has, especially if we connect the dots.
Speaking of which, here’s another dot to connect: It is now the “holiday season”, and people in general, among their celebrations, festivities and parties, fancy some of the finer things in life, such as chocolate.
Which brings to mind an old wives’ tale, which amounts to saying that you’re not supposed to give a dog chocolate because it will kill the dog.
Well, I have this little theory about that.
You see, I give my dog treats of chocolate in the form of M&Ms every single day, and I do not give my dog the chocolate to kill her but because my dog likes it, and she has never once had even the tiniest of adverse reactions.
I think that old wives’ tale is actually not so much about what chocolate can do to the dog, but rather, the fact that back in the day, chocolate was expensive.
That is to say, don’t waste it by giving it to a dog!
Imagine this: An extended family is gathered together for the holidays, and while lounging around lazily in a large living room, perhaps by a fireplace, or watching a movie, or whatever, one of the family dogs, with its puppy-dog eyes, cozies up to a little kid eating a piece of chocolate, at which point, the kid can’t resist sharing a bite with the dog.
“Little Johnny, don’t give the dog chocolate!”, yells Grandma, “it will kill him!”.
Here’s my point: Chocolate is about to become expensive again, and to many people, a luxury.
Finally, some food for thought: The United States Military packs in a good variety of chocolate and chocolate-based items in military field rations.
Why does the military do this?
People laugh at me when I say to get ready for $35 bottles of ranch salad dressing, $1500 tennis shoes, and $10,000 plane tickets.
They won’t be laughing for long.
Thanks for reading,
Paul “Half Dollar” Eberhart