Major trading houses face potential losses of about $1 billion due to Ghana’s failure to deliver cocoa beans this year.
This situation has forced traders to exit short positions as cocoa prices surge, according to Citi Business News sources.
Ghana plans to delay delivering up to 350,000 metric tons of cocoa beans this season, nearly half of what was sold. This delay could result in total losses of around $1 billion for cocoa traders and processors.
Large trade houses like Cargill, Olam, and Barry Callebaut use futures markets to lock in cocoa prices for beans they haven’t yet sold.
They buy beans months in advance, hoping to resell at a profit. To protect against price drops, they also bet on price falls in the futures market. However, this strategy fails if cocoa delivery is delayed in a rising market.
According to Citi Business News sources, traders had to buy back their bets on price falls at much higher prices, leading to significant losses.
Traders still expect to get their cocoa and have taken new short positions for May 2025 delivery at around $7,000 a ton. However, they are expected to face losses of $4,000 a ton if they receive the physical cocoa at $3,000 a ton.
The cocoa market, facing a third year of deficit, has seen prices double this year. Traders may charge chocolate makers higher prices to recover some losses, but these companies might struggle to pass on costs to consumers already buying less chocolate.
Market liquidity has also decreased as exchanges require more cash collateral to cover hedges, increasing price fluctuations.
This situation has caused trading in the cocoa market to slow down significantly, affecting both the industry and consumers.
