When renowned cocoa trader Anthony Ward paid £658m for 241,000 tonnes of cocoa beans in July the equivalent of the entire European supply it was easy to believe from the hysterical media reaction that the price of chocolate was poised to go through the roof.

In fact, in the eight weeks since the trade, about 25% has been wiped off the value of Ward's stock as the market price of cocoa has fallen to a one-year low of £1,915 a tonne in September following news of a strong crop year in the Ivory Coast. The trend for short-term speculation in commodities is a growing one but rarely has a huge bearing on retail prices, says OC&C partner Will Hayllar.

"You don't see retail prices moving until there is a sustained shift in commodity price levels," he adds. "If it is moved substantially for a month or two, that's the kind of point when people start to think seriously about how they move that through the chain."

One of the challenges for businesses trying to manage the risk of commodity costs, says Hayllar, is the short-term volatility in the market that makes it hard to know what is speculation-driven and what is the result of supply and demand imbalances. Ward has taken delivery of the cocoa, suggesting he is prepared to play a long game.

But, following the news from key exporter Ivory Coast, demand and supply look fairly well balanced and the price is not expected to increase significantly in the short-term. The long-term market trend, however, is for sustained commodity price inflation, which will inevitably have a knock-on effect in the coming years.

"Ongoing levels of moderate price inflation because of long-term drivers of consumption in developing markets are here to stay and that should result in a more volatile picture than we've seen over the past 10 years," says Hayllar.

Focus On Confectionery