This story from last week’s Wall Street Journal is an interesting example of why our clients need us to think and behave as business partners not just advertising or marketing or online (or insert catch phrase du jour) experts.
I’ve been reading a lot of late on recent West African history and the control of the cocoa production, the rise and fall of its price, is the story of the region’s fortune (or lack thereof.) The industry’s reliance on child labor has made this chocolate lover a much more choosy, questioning consumer.
Intercontinental Exchange Inc. purchased the New York Board of Trade in 2007, and converted it to an all-electronic exchange.
The move to all-electronic trading meant that virtually any one could get involved in the cocoa markets, buying and selling futures contracts online. The hope was to make the cocoa markets more like other commodities, such as oil, where contracts are traded almost around the clock.
But the move had the opposite effect on commodities like cocoa: Many cocoa floor traders and brokers, who made up about 40% of the market, have quit. Dapco Brokerage, which used to handle 30% of the cocoa trading on the floor, went out of business a year ago.
Its departure scared off other electronic-commodities traders, who have stayed out of the $4.3 billion market because of high volatility and thin liquidity.
Sometimes, fewer than 100 contracts change hands each hour in the early mornings.
That has made the market for cocoa a highly volatile one. Cocoa surged 65% in the first half of 2008, to a 28-year high of $3,360 a ton on July 1, then tanked 43% in four months before recovering 77% to hit $3,392 in late October, the highest since June 1979. On Wednesday, cocoa settled at $3,199, up 3.7%.
Soaring prices of cocoa drove chocolate makers to raise prices and cut the size of candy bars since mid-2007.
In August 2008, Hershey Co. raised prices an average of 11% to offset “significant increases” in the cost of raw materials such as cocoa, sugar and peanuts, said Hershey Chief Executive David West in a statement at the time. Andrew Bonfield, Cadbury’s chief financial officer, said on a September analysts’ call that reducing bar sizes enabled the company to avoid raising prices.
During the first 10 months of 2009, cocoa’s daily trading volumes fell 14% to a level not seen since 2005.
Born Curious 
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