Going cocoa down in armajaro

I’ve had a lot of calls from around the world since being quoted on Radio Four’s Today program regarding one Mr. Anthony Ward, or chocfinger as he’s now nicknamed.

This is because the media love a good story and this one’s a doozy. It’s all about a man who knows his chocolate, and he’s no loco, I should cocoa.

What am I talking about?

The great cocoa bean fest of course.

OK, it’s summer, it’s quiet, so you may have missed it, so here’s the lowdown.

In October 2009, Anthony Ward, who runs a commodity trading fund called Armajaro - which is an anagram of the names of the children of Mr. Ward and co-founder Richard Gower – purchased nine-month futures contracts for just over 240,000 tonnes of cocoa beans at around £2,000 per tonne.

When the cocoa contracts came to maturity in July, unlike most fund managers Mr.Ward actually purchased the cocoa. This was at a time when the commodity had reached a 33-year high of £2,713 per tonne.

Everyone thinks he’s mad.

Buy low, sell high.

And £700+ multiplied by 240,000 is a good return on investment – £168 million to be exact.

In fact, it’s more than that as, by the time all the contracts came to term, Mr. Ward owned almost 323,650 tonnes of the stuff.

Well, Mr. Ward not only did not sell but he took delivery of the beans. 

Six hundred and fifty million pounds worth.

I said that was £650,000,000 of cocoa, just in case it didn't register.

It all began on July 19th when news came from the NYSE LIFFE exchange that 240,100 tonnes of cocoa had been physically delivered against a futures contract. That’s about FIVE Titanic ship full’s of cocoa, and enough to make 5.3 billion chocolate bars. It’s 7% of the world’s cocoa supply and equivalent to all of Europe’s commodity supply for the whole of 2010.

It’s also the largest delivery since 1996, when Mr. Ward tried the same trick.

Back then, he took delivery of 300,000 tonnes of beans but he suffered massive losses.

What makes him feel that this time it’s different?

Well, he’s a risk taker with cohonez.

You see, what Mr. Ward is betting against is the harvest of cocoa around the world.

If the harvest is bad, then he makes a mint because the commodity will be in short supply

If it’s good, he loses a fortune because there will be a surplus of supply.

It’s just like the pork bellies and orange crops in the film Trading Places, although now it’s different.

The difference is that after losing a large amount in 1996, when the harvest was above expectations and his 300,000 tonnes lost value, he’s deployed feet on the street in all of the major coca producing countries: Ivory Coast (40% of the world’s supply), Ghana, Nigeria, Vietnam, Indonesia, Malaysia and Ecuador.

Not only does he have the largest contingent of cocoa analysts networked around the world, but also has the largest deck of meteorological forecasting weather stations in these countries.

That gives him the confidence not to lose his fortune again, and has allowed him to do this sort of deal once before with success. After the failure of 1996, he did a deal in 2002, when cocoa rose from £1,000 per tonne in January to £1,600 by October. Mr. Ward had bet big, and made £10 million by taking delivery of 148,000 tonnes of cocoa when future options matured in August that year, and stockpiling them until the price peaked.

This year he’s doing the same thing.

What a guy.

If you want to know more, this article gives some great background: Man in the News: Anthony Ward, from the Financial Times.

And if you really want to know more about his credentials – he’s not a speculator but the world’s most powerful cocoa commodity trader – then watch this nine-minute interview with him from Opalesque TV (interview starts 2 minutes 10 seconds into the video):