The futures exchanges give a platform for speculators and companies wishing to hedge against contracts, where the price might move against them in the future.<\/p>\n\n\n\n
They are not normally where you go to actually buy and take delivery of a commodity. But Hershey<\/a>‘s did some out of the box thinking and decided to do exactly that.<\/p>\n\n\n\n It has been reported that this tactic was derived from frustration at the West African premium of $400 a tonne applied by Ghana and Cote d’Ivoire. <\/p>\n\n\n\n Despite the dip in demand from the Covid pandemic, New York cocoa prices for delivery in December has jumped by more than 25% from lst week to $2,915 a tonne — the highest since the outbreak began.<\/p>\n\n\n\n Yet consumer demand for chocolate overall has decreased as the pandemic hits non-essential buying. Subdued demand, an excess supply, and higher costs are not a good combination, so it looks like Hershey<\/a>‘s has been doing some creative problem solving.<\/p>\n\n\n\n The futures market for cocoa is largely used by buyers for hedging. This is a strategy used as a way of minimising losses if the market moves against you.<\/p>\n\n\n\n Hershey<\/a>‘<\/a>s <\/a>turned to buying from “reserves” in trading centres such as New York rather than buying directly from cocoa producing countries.<\/p>\n\n\n\n In the New York market, it is rare to see physical buyers taking delivery of the commodity from the futures exchange since the point of the market is about making a profit on speculation more than actually wanting to own a commodity.<\/p>\n\n\n\n This can likely be attributed to reduced demand as a result of the pandemic impacting discretionary food products such as chocolate. <\/p>\n\n\n\n The timing of the long awaited $400 per tonne price increase of Cocoa from the Ivory Coast and Ghana, which account for more than 60 per cent of world production, now looks unfortunate.<\/p>\n\n\n\n Physical market buyers also have to pay a \u201ccountry premium\u201d for cocoa from Ghana and Ivory Coast whose beans are regarded as higher quality among the African producers.<\/p>\n\n\n\n \u201cIt\u2019s been hell of a rally,\u201d said Jack Scoville at commodities brokers Price Futures Group in Chicago, who added it was the Ivory Coast and Ghana policies that was on traders\u2019 minds. \u201cIt is not a fundamental strength,\u201d he added. <\/p>\n\n\n\n While most chocolate companies and cocoa traders have said they were happy to pay the $400 \u201cliving income differential\u201d premium for farmers, they have requested more flexibility on the country premiums to reflect lower demand. \u201cIt\u2019s a complete mess at the moment. I wish Ghana and Ivory Coast would talk and listen,\u201d said one large cocoa trader. <\/p>\n\n\n\n Procuring beans through the exchange, where there is no living income differential premium, offers a discount of about $200 a tonne for top-grade beans for Ivory Coast compared with the physical markets, according to brokers.<\/p>\n\n\n\n Buyers of beans on the exchange, however, do not have control over the quality of beans that get delivered. <\/p>\n\n\n\n