Armajaro's Cocoa Trades - The Tontine Coffee-House

The organization of commodity exchanges and the creation of instruments like futures contracts have made it easier to connect buyers and sellers. They have also increased the role and impact of intermediaries like commodities traders. Occasionally, these intermediaries have accumulated positions, either as buyers or sellers of a commodity, that were large relative to the entire size of a market for a particular commodity. There has even been no shortage of attempts to corner the markets in various commodities, from onions to silver. Many are simple tales of aggressive trading by bold speculators. However, some of these supposed schemes have been sophisticated and well-informed, complicating notions of who a commodities speculator is.

Armajaro

Armajaro, a trading and asset management firm based in London, was co-founded by Anthony Ward in 1998. He was a commodity trader who began in the industry sampling tea products for the Malaysian trading company Sime Darby. Then he traded in cocoa while at the commodity trading arm of Salomon Smith Barney. There, he made a large but unsuccessful trade in cocoa in 1996, buying up large volumes, equal to 10% of the annual cocoa crop, just before prices fell.

Despite that, he continued to be active in cocoa and a decade of experience in this particular commodity made Ward a respected expert in the product and the global market for it. It was Ward who led the commodity trading side of the business at Armajaro. This was its principal activity too; the firm traded in cocoa, coffee, and sugar among other products. By 2009, Armajaro had $1.5 billion in assets under management split across a few funds. The equity invested in these funds was complemented by bank lines from a diverse pool of bank lenders.

Across all of its trading, of which commodities accounted for the lion’s share, the firm made nearly $6 million in pre-tax profit in the twelve months ending September 2009 off of trading gains, its main source of net revenue, of $122 million. Its commodities trading subsidiary, Armajaro Trading Limited, traded 533,000 metric tons of commodities in 2009 and this was responsible for the vast majority of the hedge fund’s business.

Armajaro had made very large trades in cocoa even before 2010. There was considerable buying in 2002, a year that saw cocoa prices surge higher. The firm’s activity had been considered by some as an attempt to corner the market and create a supply squeeze. This may seem like an extraordinary accusation but the amassing of positions by individual firms that are so large relative to global production and inventories has been an ordinary occurrence in commodity markets. Ward was likened to Nelson and William Hunt of Texas who tried to corner the market for silver in 1979-80.

Cocoa

However, Ward’s firm did not seem to be engaging in pure speculation or scheming to corner a market, activities where the boldness of the trading maneuverers is the most noteworthy feature of the plots. Rather, Armajaro was a rather sophisticated and labor-intensive operation. Someone could plot to corner the market on an exchange with few or no employees but Armajaro had over 900 employees by 2010.

The firm had offices in West Africa, its own weather stations, and even a meteorologist on the payroll, all in addition to buying weather data where it could. Its staff would estimate the size of upcoming harvests and weather data was obviously critical in doing so; small changes in weather could rather easily grow or shrink crop yields by 10%. In a 2010 interview, Anthony Ward was particularly interested in water shortage as a driver of future crop prices.

Cocoa output is affected by all sorts of factors beyond weather too. Armajaro’s 2002 trade was based on other warning signs auguring a lousy crop that year. Indeed, African cocoa plantations were increasingly full of old and sickly trees. The Ivory Coast is the largest cocoa producer, averaging an output of 1.37 million metric tons per year in the late 2000s, production that largely came from 900,000 small plantations with limited mechanization. These operations looked increasingly strained.

The cocoa harvest comes in October and the late 2000s saw a string of lousy harvests. This was the result of underinvestment in the Ivory Coast and a civil war there in 2003-04. Trees are most productive for thirty years before output falls and many plantations were replanted in the 1970s and these trees were no longer as productive as they once were. There was also a ‘black pod’ fungal disease impairing the crop and high taxes on output discouraged more production.

The supply challenges were already lifting prices higher. Yet, consumer demand remained strong as only 10% of the retail price of a chocolate bar is the price of cocoa. So, cocoa prices could rise without much change in the cost of the final product or any change in consumer behavior and this is with respect to existing customers. In the 2000s, accommodating expected future demand from new Chinese consumers looked daunting.

Trades

Armajaro had buying operations not only in the Ivory Coast but in Indonesia and Ecuador as well and connected suppliers and clients. Compared to other participants in financial markets, those trading in physical commodities are often truly inserted in the supply chain for physical goods they trade in. The firm was becoming only more important in this respect. In 2010, just as it was making headlines for its large cocoa trades, Armajaro acquired a large stake, approximately 40%, in NV Bromacom, the holding company of a Dutch cocoa trader Theobroma BV.

However, as intermediaries, they are not buying because the commodities are inputs into another industrial process. Rather, they can be flexible about their buying and can also buy in anticipation of future scarcity, offloading their accumulated stock when prices have risen. Anticipating exactly this, Armajaro began buying especially large volumes of cocoa in October 2009 likely averaging about £2,100-£2,200 a metric ton across their orders. These were futures contracts for July 2010 delivery. When a futures contract, which allows someone to lock in a price for a future delivery, expires, the buyer can opt to accept physical delivery of the commodity or a cash settlement, at least for cocoa futures traded in London.

Armajaro opted for the former. This was the largest recorded physical delivery of cocoa in fourteen years. It took delivery of 241,100 metric tons of cocoa in July 2010. Armajaro came to control the equivalent of 7% of annual global cocoa production. Mountains of cocoa beans were kept in refrigerated warehouses; the beans have a long shelf life so the fund could keep the inventory in storage for as long as twenty years. With this one settlement accounting for much of it, Armajaro traded 724,000 metric tons of commodities in the twelve months ending September 2010 or 35% more trading than the prior year.

Cocoa beans at Ivory Coast warehouse (source: Thierry Gouegnon / Reuters)

Outcome

The price of cocoa traded in London was £2,732 per metric ton when Ward’s firm took delivery. At this price, the firm clearly made a large profit. Cocoa prices had reached a multi-decade high, up 150% since 2008. Pre-tax commodity trading profits for the year-ending September 2010 was $22.3 million, up from $5.5 million the year prior. Overall pre-tax returns on net assets grew from 11.6% in 2009 to 37.8% in 2010. Annual pre-tax commodity trading profit grew to $37.2 million the following year.

While lucrative for Armajaro, those buying cocoa for processing complained about the firm’s actions. A German cocoa trade association wrote to the LIFFE in London, the exchange on which the cocoa futures are traded, protesting what they called manipulation. Prices did level off and then began to fall as production was growing in Indonesia, Nigeria, and Colombia. By this point, Armajaro was shifting its focus towards new areas; the firm grew its sugar and coffee trading operations in 2011.

Lesson

Commodities trading has seen plenty of aggressive trading over its history. Some of these episodes may have simply been the product of actors with large financial resources keen on exploiting flaws prevalent in any market. However, aggressive trading alone is often insufficient to make a profit. Large trades must be financed at a cost which is usually meaningful even where it isn’t prohibitive and danger lurks if some other actor, perhaps a large producer, buyer, or government, intervenes in the market in a way counter to the trader. These are just a couple of the hazards involved. To overcome these costs and risks, even the most aggressive traders are often well informed. Armajaro had considerable analytical resources and information at its disposal and not only boldness and money alone. Some of its positions were quite long term too. It confounds some of the distinction often made between shrewd and careful investing and daring speculation.

More from the Tontine Coffee-House

Read about past efforts to corner the market in silver and in onions. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.

Comments (1)

Craig Pirrong
November 18, 2025
I’m sorry, but you are way too credulous. Armajaro cornered the market. Period.
Ward’s cover story (“Because of my awesome commercial intelligence I thought the new crop would be small and prices would go up”) was total bullshit. If that was his belief, he should have bought new crop cocoa, rather than take delivery of old crop cocoa at a huge backwardation.
I wrote about this at the time, similarly calling bullshit on Javier Blas’ equally credulous account in the Financial Times. Here’s one of the pieces.
https://streetwiseprofessor.com/get-a-room/
I have an extended analysis of this episode in a book on manipulation currently in progress. Conclusion: it was a corner, without a doubt.

Armajaro’s Cocoa Trades