Thursday, March 25, 2010

Cocoa price being driven up by market makers?

Thanks Robert for the heads up. Sugar was driven up by market makers and then the price collapsed once they stepped out of the market.It would appear that the same thing is happening with Cocoa as happened with oil and Sugar. Lets see if there is a price collapse any time soon?


World chocolate shortage ahead?

Cocoa futures are near three-year highs as a drought in Africa combines with changing consumer tastes to pressure the chocolate supply.

By Elizabeth Strott

It's every chocolate lover's nightmare: a chocolate shortage.

A drought in Western Africa and unrest in the Ivory Coast -- the world's biggest cocoa producer -- has combined with rising consumer taste for cocoa-rich dark chocolate to raise concerns about a shortage in supply.

As a result, cocoa futures have been trading at three-year highs, with prices rallying since the beginning of the year.

"In the last few months, cocoa prices have rallied on expectations for a smaller crop from the Ivory Coast and Ghana," said Boyd Cruel, a senior analyst at Alaron Trading who covers the cocoa market.

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World production of cocoa is down 5.5% on a year-over-year basis from 2005-2006, according to the International Cocoa Organization -- and cocoa's price has risen 44% since November 2005.

But don't fret over $5 Snickers bars just yet: Cruel said that markets have already factored in the supply issue. The highs reached this week are technical in nature, he said, because news of the drought has been out for months.

Another commodities analyst agrees.

"On the fundamental side, we don't expect to see changes in demand," Barclays' Sudakshina Unnikrishnan told Bloomberg News from London. "Going into the second quarter, the real wild card continues to be based on the conditions and political situation in Ivory Coast."
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Blame the trend?
Part of the problem, say chocolate experts: As customer taste has shifted from milk chocolate to dark, demand for cocoa has risen; the darker the chocolate, the more cocoa is required for production.

Dark chocolate has recently been considered the "healthier" of the chocolates, with high levels of flavonoid antioxidants; it has also been found to lower blood pressure.

Chocolate manufacturers have been happy to encourage the trend, as dark chocolate is also a higher-margin product.

"Consumers are very interested in the goodness benefits of chocolate, including the antioxidants found naturally in dark chocolate," said Michele Buck, Hershey (HSY, news, msgs) chief marketing officer, in a statement today. "This interest is driving explosive growth in dark chocolate."

In the U.K., dark chocolate bars are outselling their milk chocolate relatives in the retail chain Woolworths for the first time ever. In the United States, retail sales of chocolate have climbed about 3% every year since 2000, the National Confectioners Association has reported, with dark chocolate one of the fastest-growing categories.

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"Two years ago the hot thing in chocolate was white. Now dark is the flavor of the month," Woolworths CEO Trevor Bish-Jones told British paper The Independent. "Consumers are doing the same thing in chocolate as in the rest of the food market. They are trading up and being more discerning about what they buy," Bish-Jones said.
Should candy companies worry?
In the short term, candy companies like Hershey and Cadbury Schweppes (CSG, news, msgs)should be able to absorb the boost in price as they hedge aggressively for the volatile cocoa market.

"In terms of resell prices, this won't have a major impact immediately," Alaron Trading's Cruel said.

But there could be problems down the road if the drought continues.

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Nestle, Hershey and Cadbury did not return calls for comment.

Three million tons of cocoa, worth $5.1 billion, are produced around the world each year.

Tuesday, March 23, 2010

Sugar price collapses so what?

My mate is a sugar trader and one day, a few months ago, he said there were new traders in the pit and things had started to go crazy. Next I read an article about how there was going to be a shortage in sugar. It occurred to me that the same events had occurred in the past few years with oil trading. New traders entered the market, stories filled the papers about the Saudi oil reserves being less than stated and experts said we were running out of oil. Well here is what really happened ….market makers came into the market, ran it up 230% then stepped out …and the market crashed. Well Sugar just followed the same pattern… it was run up 210% from its base value, then the market makers stepped away and guess what? Sugar price collapsed. WOW no shortage! I wonder where the market makers are headed next?


The coming Brazilian harvest and slack demand triggered selling, pushing prices down 7.1% Tuesday to a nine-month low. Here, a woman cuts sugar can in Brazil in 2008.
.Sugar prices plummeted 7.1% to nine-month lows as the coming Brazilian cane harvest and slack demand triggered selling.

Tuesday, nearby May world raw sugar on the ICE Futures U.S. exchange settled down 1.27 cents, to 16.57 cents a pound, after touching a bottom of 16.40 cents, the contract's lowest price since June 17.

Sugar prices have fallen 43% since reaching a 29-year high Feb. 1, when May futures hit 29 cents a pound. Prices had soared on expectations of diminished output for the 2009-10 crop in the world's top producer and exporter, Brazil, and the No. 2 sugar producer and top consumer, India. However, when Brazilian and Indian output turned out better than expected, sugar futures began a nose-dive.

Beverage manufacturers and confectioners have been reluctant to buy sugar at such expensive levels, and that lack of demand also has contributed to the declines. End users will wait for prices to stabilize before returning to the market, analysts said.

"At the moment, the market is coming off of its sugar high pretty badly. Today's big blowout drop will probably beget more selling," said Sterling Smith, market analyst at Country Hedging in St. Paul, Minn.

May sugar could trade as low as 15 cents to 16 cents a pound before the bearish momentum turns, Mr. Smith said.

"Every time the market bounces a little, selling comes into the market and keeps [it] from building momentum to try to correct," said Alex Oliveira, sugar broker and analyst at Newedge USA, a branch of global brokerage Newedge, in New York.

Production in Brazil is expected to ramp up quickly as the 2010 harvest begins officially on April 1. The Brazilian Sugarcane Industry Association projects sugar-cane output in the main central-south region of the country may rise 10% this season to more than 580 million metric tons.

World sugar production is expected to fall short of demand by 9.4 million tons in the 2009-10 crop year, but the balance in the 2010-11 season could be a surplus of a million tons, the International Sugar Organization said in February.

Monday, March 22, 2010

Dividends Take to the Comeback Trail! See one of my posts Sept, March, May Feb 2009 outlining why they would.

Dividends Take to the Comeback Trail.By PETER A. MCKAY

In the tumult of the last two years, dividends have been all but forgotten. Now they are starting to make a comeback.

So far this year, companies in the Standard & Poor's 500-stock index have announced $4.4 billion in combined net dividend increases, the best figure since the fourth quarter of 2007. Last year's first quarter was the worst in recorded history, with companies announcing $38.7 billion in dividend cuts, according to S&P data.

.The recent announcements of increased payments come as corporate balance sheets are flush with cash—a record $832.4 billion at non-financial companies in the S&P 500 at year's end, up by more than a third since 2008.

Hunting for dividend payers traditionally has been considered a game only for the cautious. It has largely been out of favor during the market's rebound from the bear-market lows set last March. The Dow Jones Industrial Average is up 64% over that period, including gains in 10 of the last 12 sessions. Before suffering a slight pullback Friday to 10741.98, the Dow rallied last week to its highest close since October 2008.

The gains have been largely driven by smaller stocks, those considered higher-risk or likely to be acquired. Such companies generally aren't dividend payers. In contrast, the large market stalwarts that tend to make regular quarterly payouts have been largely snubbed during the comeback.

Now that corporate profits are recovering, though, it is inevitable that investors will take a harder look at what companies are doing with their newfound riches, traders and analysts say. Shareholders are likely to demand at least some of the rising earnings be put directly into their hands.

"I think we're getting into a period of perhaps a half a decade or so where investors will be looking for more yield wherever they can get it," says David Prokupek, chief investment officer at portfolio-management firm Consumer Capital Partners in Denver. "Dividends definitely fit into that theme, especially since you're just starting to see them come back along with some of these other things."

Mr. Prokupek says his firm has been buying dividend payers like AT&T and Verizon this year as a play on increased corporate payouts, since each boasts a dividend yields above 6%. He also is betting on several exchange-traded funds tracking the utilities sector, which historically offers a steady dividend stream.

One encouraging sign: Last week, General Electric's chief financial officer said that the conglomerate might begin raising its dividend again in 2011. The news, which came a little more than a year after GE announced its first dividend cut since 1938, helped drive up GE shares by 6% for the week.

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So far this year, companies in the Standard & Poor's 500-stock index have announced $4.4 billion in combined net dividend increases, the best figure since the fourth quarter of 2007. Above, Richard Newman of Barclays Capital on the floor of the New York Stock Exchange last week.
.To be sure, total dividend payments are still relatively low compared to a year ago, since many companies' earlier cutbacks are still in effect. Actual payouts in the first quarter are projected to decline about 16% from a year earlier, according to S&P data. But analysts say hints of increases to come—just like GE's reassuring comments last week—suggest that the pendulum is swinging in the right direction for dividend-starved investors.

S&P analyst Howard Silverblatt says he expects a surge in dividend increases in the third quarter as the economy improves. In all, 2010 will probably see a 5.6% increase in dividend payments among S&P 500 companies, Mr. Silverblatt estimates. That would be a big reversal from 2009's record decline of $52 billion in dividends, or 21%, to $196 billion.

In the current quarter, 77 companies in the S&P 500 have announced dividend increases, compared with just two that cut their payouts, according to S&P. Valero slashed its dividend by 75%, and Tesoro suspended its dividend altogether. Both companies are refiners that have been squeezed by higher oil prices and weak demand for finished fuels.

The fuel behind increased dividends comes from the recent rebound in corporate profits, which in turn are being helped by greater efficiencies that companies instituted during the worst days of the financial crisis.

S&P 500 companies tripled their per-share earnings in the fourth quarter compared with the same period a year ago, near the worst of the financial crisis. For the first quarter ending March 31, S&P 500 companies are expected to report a combined 36% rise in per-share profit, according to Thomson Reuters. Revenue is expected to rise about 10%.

After the massive cost-cutting by corporate America, many traders expect the market will enjoy solid "earnings leverage," or outsized benefits from any uptick in sales, which should go straight to the bottom line. For now, analysts surveyed by Thomson Reuters are calling for overall S&P 500 profits to surge by about 20% to 35% every quarter this year, aided by growth of 6% to 10% in sales each quarter. Those forecasts are subject to big revisions.

Still, analysts and money managers warn of pitfalls that could disrupt a dividend bonanza. Mr. Prokupek points to the health-care legislation taking shape in Washington, which likely will raise taxes on dividends but keep their advantage over interest payments.

Michael Thompson, a managing director at S&P, says he is skeptical that dividend yields, or payments relative to share prices, are sufficiently out of whack with bond yields to encourage executives to compete for investor attention by raising their payouts.

The S&P's dividend yield, based on total payments in 2009, was about 2%, while the benchmark Treasury note now stands at 3.693%. But if profits grow as fast as Wall Street expects during the next few quarters, the gap could close quickly, especially now that the Federal Reserve has pledged not to raise interest rates anytime soon.

"There's no question a lot of the big guys are increasing dividends right now," says Mr. Thompson. "But I also think it's true that if they see something else that will make a good use for their cash, especially M&A, they'll go after that."

Perhaps the biggest question hanging over dividends: When will financial companies rev them back up? The crisis led to huge cuts, and regulators are reluctant to allow increases given the pile of bad loans still haunting most banks.

Bank of America Chief Executive Brian Moynihan recently said the giant bank remains cautious even though the worst of the crisis is receding, hardly an encouraging sign about dividends. In February, J.P. Morgan Chase James Dimon said the bank won't raise its dividend until it is sure the business environment has improved.

Mr. Silverblatt thinks increases in dividends by banks could be several quarters away. Even then, per-share dividend payments are likely to be smaller than they were before the crisis at banks that issued piles of shares to help repay U.S. government aid.