With the price of Cocoa still on the rise, it looks like the wife will not getting a box of chocolates on Valentines Day!
The last time Cocoa prices traded at the current level, I was a young floor trader on the London Cocoa Exchange, that was back in 1977!
Three years of poor global production and prices continue to sky rocketed, and they say there is no end in sight.
At $5000 per tonne, we are talking crazy numbers here, and quite frankly it is becoming very difficult for the contrarian that I am to stay away from having a punt. I have discussed this market a few weeks back and was exploring the idea of buying some Put options. If I can buy some July 4800 puts for less than $2500, I might have a gamble. Just for old times’ sake!
Chocolate is a luxury item that we all consume, but there is only so much people are willing to spend on a Hershey Bar or a bar of Cadburys, before they cut down on their consumption.
What will happen is that manufacturers will be forced to reduce the Cocoa content of their bars, and start adding cheaper ingredients and fillings to maintain market share, nonetheless, it will be interesting to watch how the sales of this little luxury are affected over the coming months.
Manufacturers of luxuries and quality products are always promoted as the “stocks to own” when times are hard, but whether I would buy shares in a chocolate manufacturer when raw materials take off like this is something I would seriously think twice about.
It’s the same as buying shares in Gold mining companies because the price of gold is increasing. From my perspective, why buy shares in one company, when I can simply go out and buy the physical gold or have a dabble on the futures. For that matter, the same applies with BTC ETFs.
But that’s me, I like to keep things as simple as I can.
In our hi-tech world, with all the wonderful high frequency trading algo programs, its got to the point where people know or care little about the products in which they invest, they mostly want fashionable products with lots of volatility and liquidity.
Volatility and liquidity is always an important consideration when trading any financial instrument or speculative asset, and while I am a great believer in the power of technical analysis, I do lament the collapse in the number of people who we can call “real experts” in any specific product.
A long time ago, I was considered an expert in Cocoa, and that meant I knew almost everything about it.
I could take a seed, plant it in the right soil, grow a tree, protect it from pests and diseases, harvest the fruit, ferment it and dry it. I could then take it to a factory, grind it, separate the powder from the butter, and then stick it back together with some milk and sugar, which resulted in Chocolate.
I had all the statistics county by country, month by month of exports, as well as statistics on every countries imports and purchases, so I could rattle off supply and demand, as well as surpluses or deficits, any day of the week, and would issue in-depth reports every month for those who wished to hedge their exposures or for those who simply wanted to speculate on future valuations.
I no longer consider myself an expert in this commodity, and wouldn’t know where to find one, although I do see a few traders and “advisers”, most of whom have never even been to a cocoa farm, using the word “expert” in their job title.
There are experts in our business who have an immeasurable amount of knowledge in specific sectors or instruments, and when I find one, I follow them closely as direct access to these people is extremely limited.
I wouldn’t consider myself an expert in any product today, but what I do have is a vast amount of experience trading and researching a wide range of sectors and products and have the capability to discuss an assortment of investments with the guys I know and work with, who also have a long-established career in research, trading, and speculation.
Sometimes we agree, and often we disagree, and sometimes I will share these views in my weekly reports for our readers. But what we do not do, or very rarely do is follow the pack and issue commentary we lifted from another person’s research and ideas. That isn’t adding value, and if you want to have a long career in our business, you need to add value.
Each of my colleagues at JPFS and SGT, whilst never issuing trading recommendations to their clients, have decades of experience in our industry, covering all aspects of trading and speculating, and their goal is always to add value to the clients they have on their books.
I might not make money on my Cocoa put options, but I guarantee your trading experience will become much richer, if you follow what my colleagues are doing and putting out.
That’s not a sales pitch, that is simply a fact.
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