The ton of cocoa gained nearly 25% over one week, pushing the chocolate manufacturer Hershey to stock up on the American futures market. An unusual strategy to circumvent the decent income bonuses imposed by Côte d'Ivoire and Ghana.

The price of cocoa is racing but the depression linked to confinement and the approach of the Christmas holidays have nothing to do with it. On the New York futures market, the price of cocoa for December delivery climbed more than 25% last week to reach nearly $ 3,000 a ton on Tuesday, a level not seen since 2016. And unusually, this is not a speculator, but the American confectionery giant Hershey who would hide behind this rise.

According to several media, including the Bloomberg agency which cites witnesses to the transactions, the confectioner would have turned to the InterContinental Exchange (ICE) in New York to source cocoa. A surprising strategy, manufacturers of chocolate bars having the habit of buying beans directly from traders or producing countries.

Hedging instruments

Futures contracts on the New York or London markets are financial instruments used by physical players to hedge against price fluctuations, or by financiers to speculate on the raw material by arranging never to be delivered. .

Interest in Hershey? For the past few weeks, Côte d'Ivoire and Ghana, which alone produce 60% of the world's cocoa, have imposed a bonus of 400 dollars per ton to better remunerate planters, via the decent income differential or DRD.

Savings

Buying on the futures market therefore saves Hershey millions of dollars, as beans from ICE warehouses do not include DRD, or about 15% of the market price. However, the buyer has no control over the quality of the goods delivered.

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The confectioner denies wanting to circumvent the decent income bonus: "We buy cocoa from a variety of sources," reacted the confectioner to AFP. "We pay the decent income differential" on the harvest that begins "and in addition, we invest in agricultural education," said the group.

The bounty effect

At SMA Gestion, commodities manager Benoît Hélin is also skeptical: “We are seeing an interest in physical outcomes at the end of the year, but nothing that really comes out of the usual orders of magnitude for the period to date. » Rising prices? It is linked to the premium which is gradually being integrated: “the DRD inevitably has an inflationary effect in a market in the process of cartelisation”, analyzes the expert.

In the short term, it is "a conjunction of factors which explains the catch-up in prices", adds his colleague Sylvain Berthelet of SMA Gestion: demand from manufacturers is "not as sluggish as we thought" at the approaching the holidays. The manager mentions the transfer to the futures markets with lower prices than on the physical market. And more particularly towards that of New York whose stocks are reputed to be of better quality than in London. The beans from the London reserves come a lot from Cameroon and are more difficult to process.

The price of cocoa is a sensitive subject in West Africa. “Brown gold” supports around 5 million Ivorians, it represents between 10% and 15% of Côte d'Ivoire's GDP and up to 40% of its export earnings. But the living conditions of the planters are not very good. The World Bank estimates that 80% of them live on less than 3 dollars a day. The exporting countries capture about 5% of this 100 billion dollar market when the consumer states capture 15%, just with the VAT on chocolate bars.

Surplus market

Côte d'Ivoire and Ghana have therefore decided to join forces by creating a kind of cocoa OPEC to better exploit this resource. Despite tense discussions, manufacturers have accepted the principle of DRD, especially since the price of cocoa is marginal in the added value of a tablet. Manufacturers can very well absorb the price increase or pass it on to the consumer.

Since the negotiations, market fundamentals have shifted which may explain the reluctance of manufacturers to integrate this premium. With the health crisis and containment measures, chocolate consumption has dropped significantly. The harvest promises to be abundant and the market will be in surplus next year. The long-term upside potential is therefore limited according to Rabobank analyst Stefan Vogel: “Cocoa is hitting the wall of consumer demand”.