Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy allows. You know, Tracy,
Speaker 1: there's some commodities out there that I feel like what
Speaker 1: people talk about them, they don't always take them very
Speaker 1: seriously as commodities, as serious markets. Um, I'm trying to think, now,
Speaker 1: live hogs maybe, well that's probably one. Another one I
Speaker 1: would say is the marijuana industry still, you know, But
Speaker 1: now we're gonna be talking about another commodity about which
Speaker 1: I feel like people often like to make jokes or
Speaker 1: maybe don't realize is very serious business, and that is coco. Coco.
Speaker 1: I love chocolate. Yeah, exactly. See, you've proved my point,
Speaker 1: which is that as soon as the conversation turns to
Speaker 1: cocoa or chocolate, usually people start getting into some sort
Speaker 1: of aesthetic discussion about how worse they love it, and
Speaker 1: you know which you never hear of, say, we're talking
Speaker 1: about copper or palladium. That's right. People don't start talking
Speaker 1: about their favorite like shades of metals when they're talking
Speaker 1: about precious metals. That's very true. Whereas I feel a
Speaker 1: very very strong urge right now to talk about my
Speaker 1: favorite brands of chocolate, but I will resist. Well, it's
Speaker 1: not that it's uh irrelevant perhaps to our conversation, but
Speaker 1: it is good to remind people that there is a serious,
Speaker 1: traded commodity market that underlies the chocolate that they love
Speaker 1: and has some very interesting market dynamics in terms of
Speaker 1: who supplies it, who grows it, who buys it. That
Speaker 1: makes it a perhaps more interesting story than just something
Speaker 1: very sweet and tasty to eat. Well, I'm intrigued. I
Speaker 1: think we should talk about the serious side of chocolate,
Speaker 1: and I will try very very hard not to make
Speaker 1: any jokes. Okay, Well, today we are going to be
Speaker 1: talking to Christy Leslie. She is a professor at the
Speaker 1: University of Washington bothel and she is also the author
Speaker 1: of a book all about the coco market called Coco.
Speaker 1: I've spoken to her on TV on my TV show
Speaker 1: What You Missed that I co host about the incredible
Speaker 1: rally that we've seen this year in the price of coco,
Speaker 1: and I was so fascinated by the dynamics of the
Speaker 1: coco market that I wanted to learn more and really
Speaker 1: dive into how this commodity market really works. Christie, thank
Speaker 1: you very much. For joining us. Yeah, no, thanks for
Speaker 1: having me. It's great to talk again. And um, I
Speaker 1: really appreciate very much your comments about taking coco seriously.
Speaker 1: When I did my PhD by studying cocoa and chocolate,
Speaker 1: it was it was actually pretty difficult to be taken
Speaker 1: seriously as a scholar, at least in the beginning, because
Speaker 1: people immediately wanted, just as you say, to start talking
Speaker 1: about their their favorite chocolate. No imagined like if you
Speaker 1: had written, say, a book about how the soybean market
Speaker 1: or the corn market worked, no one would really question
Speaker 1: that it was serious scholarship and serious business. But of course,
Speaker 1: I guess if you write about chocolate, immediately people think
Speaker 1: maybe it's a bit more of a frivolity or something
Speaker 1: that is, uh yeah, not that serious. I really think so.
Speaker 1: And I think it's because people don't usually have the
Speaker 1: same kind of emotional relationship with soybeans or corn as
Speaker 1: they do with chocolate, and so it's much easier for people,
Speaker 1: I think, to make the transition to thinking about those
Speaker 1: those things as serious traded goods. You know, But we
Speaker 1: have such a strong we're we're passionate, we're collectively passionate
Speaker 1: about chocolate. So you know, the first thing people think
Speaker 1: of is their own personal experience rather than maybe the
Speaker 1: larger economic context. Christie, I just realized something which I
Speaker 1: should have said in the beginning, Where where are we
Speaker 1: talking to? Where are you based right now? So I
Speaker 1: am in Across which is the capital of Ghana and
Speaker 1: in West Africa, And Ghana is the second largest cocoa
Speaker 1: producing country in the world. The first largest is Ivory Coast,
Speaker 1: which is right next door. And there's there's no cocoa
Speaker 1: in Acrow itself. It's a very urban environment, so we
Speaker 1: don't see that many cocoa trees around um, but not
Speaker 1: too far outside there there's quite a bit of cocoa.
Speaker 1: So I mentioned in the beginning that there were some
Speaker 1: interesting aspects with where coco has grown. You mentioned Ghana,
Speaker 1: you mentioned Ivory Coast. What does the global distribution overall
Speaker 1: look like, how significant are these particular markets, what are
Speaker 1: some of the other big ones, and just sort of
Speaker 1: let breakdown where our coco comes from overall. Yeah, that
Speaker 1: it's that's so important to to understanding this market. So
Speaker 1: just the coco is indigenous to the Amazon River basin,
Speaker 1: so it was born in Central and South America. And
Speaker 1: it was first cultivated in Central and South America, and
Speaker 1: that's that's important to know because today countries in that
Speaker 1: region don't actually produce a lot of coco um Today
Speaker 1: West Africa is really the predominant producer region, but by
Speaker 1: by a lot. So about three quarters of all the
Speaker 1: cocoa in the world now comes from Africa, and most
Speaker 1: of that is in West Africa and so Ghana every
Speaker 1: coast is number one, Ghana is number two, and then
Speaker 1: Nigeria and Cameroon also in the region produced quite a
Speaker 1: bit of cocoa as well. So really between these four
Speaker 1: countries we're looking at a vast amount of cocoa. The
Speaker 1: exception is Indonesia, which is the third largest producer in
Speaker 1: the world, about nine or ten percent of all cocoa.
Speaker 1: And what you see in Indonesia though, is a bit
Speaker 1: different kind of coco processing, and so the beans that
Speaker 1: come from Indonesia are typically not fermented, and that means
Speaker 1: they can be used only in a in a different
Speaker 1: way in the chocolate making process. So so when you're
Speaker 1: looking at this foundation of the chocolate industry, we really
Speaker 1: have to look at Africa. So how did that happen?
Speaker 1: How did West Africa become the place for the majority
Speaker 1: of the world's coco production. It's an interesting story. You know.
Speaker 1: Partly it is to do with colonialism, and so when
Speaker 1: Portugal and Spain decolonized the America's, when they when they
Speaker 1: relinquish their on ease there, it sort of coincided with
Speaker 1: a massive drop in production in the America's and that
Speaker 1: was for a number of reasons. So you had two
Speaker 1: things happening at the you know, around the same time
Speaker 1: was was Portuguese and Spanish colonization and then subsequent d
Speaker 1: colonization loss of production in the Americas. And at the
Speaker 1: same around the same time were a little bit later
Speaker 1: Britain and France colonizing Africa. The thing that was happening
Speaker 1: not maybe in the background would not be the right
Speaker 1: way to describe it, but the thing that was happening
Speaker 1: in Europe at the time was that the chocolate industry
Speaker 1: was born and it was growing. So you can imagine
Speaker 1: the new chocolate companies, Cadburry among them, you know, Hershey
Speaker 1: a little bit later, had just discovered that they could
Speaker 1: sell chocolate, you know, and that it was extremely popular
Speaker 1: with people. Um people started to develop a taste for
Speaker 1: it in Europe. I mean, we're looking at a situation
Speaker 1: where they US cann't get the beans from the Americas
Speaker 1: to the same volumes as as they produced previously, and
Speaker 1: turned to Africa where there was a lot of enthusiasm
Speaker 1: for this new crop. Uh, coco was making people more
Speaker 1: money here than than other export crops they were growing
Speaker 1: at the time. The climate was really suitable for cocoa,
Speaker 1: and you know, between the two of them, France and
Speaker 1: Britain could exert a lot of colonial power. And so
Speaker 1: you see this massive global shift. I mean, I just
Speaker 1: described that to you in in a minute or two,
Speaker 1: but really it happened over over decades, if not a
Speaker 1: century or more. So it wasn't an overnight shift. But
Speaker 1: that's the basics of it. So, Christie, the first time
Speaker 1: we talked, and we were talking about the incredible rally
Speaker 1: that we had seen in coco prices this year, how
Speaker 1: much of the pricing of coco is essentially just a
Speaker 1: function of the weather conditions at any given time in
Speaker 1: West Africa. Yeah, it would It would be impossible for
Speaker 1: me to quantify it, so I couldn't put in an
Speaker 1: exact figure on how much is the weather I tend
Speaker 1: to put more faith in the weather as the driver
Speaker 1: than maybe some other analysts. I just don't see other
Speaker 1: factors contributing as much, unless unless it's politics. Really, so
Speaker 1: the other another big driver of price is the political
Speaker 1: situation in this part of the world. So, for example,
Speaker 1: during periods of conflict and Ivory Coast, even though Coco
Speaker 1: still moved out of the country, sometimes in very large quantities,
Speaker 1: the when there was conflict in the possibility that Coco
Speaker 1: might not be getting out of Ivory Coast, then we
Speaker 1: saw that drive the price up as well. So you know,
Speaker 1: really it's any anything that that shortened supply, anything that
Speaker 1: supply potentially less, and really that's weather and and and
Speaker 1: politics for the most part. So if I had a
Speaker 1: really good weather forecasting machine, would I be able to
Speaker 1: almost perfectly predict the cocoa price. No, because we're at
Speaker 1: the end of the day, we're dealing with people and
Speaker 1: so people, you know, the price doesn't happen kind of magically.
Speaker 1: It happens, but you know, because people, traders and companies
Speaker 1: are making decisions about whether to buy your sell coco right,
Speaker 1: and so you know, they take into account much more
Speaker 1: than the weather and um one of the other things
Speaker 1: that they take into account obviously is demand, and so
Speaker 1: we can we would also need to bring that input
Speaker 1: in as well, and demand can be of course another
Speaker 1: big price driver. The thing is about chocolate is that
Speaker 1: demand doesn't tend to diminish that much. It's it's kind
Speaker 1: of steadily grows over time, and especially when when new
Speaker 1: markets and Asia started to develop, and there we really
Speaker 1: mean China and India, we had an even kind of
Speaker 1: bigger boost in demand. And so you know, demand influences price.
Speaker 1: If if the big companies say they're not processing as
Speaker 1: much coco one year or to the next, that can
Speaker 1: also make a difference on price. But overall, you know,
Speaker 1: it's a pretty people still like to eat chocolate and
Speaker 1: that's not going away. Christie. Would we think of the
Speaker 1: price of a commodity? I think sometimes we think that
Speaker 1: that price arrives kind of by magic, or at least
Speaker 1: I do. I sit at my Bloomberg terminal, I start
Speaker 1: typing in coco. It brings up a cocoa future and
Speaker 1: I can look at it on a chart. But of
Speaker 1: course that price has to be derived from real people
Speaker 1: making real transactions on the ground, buyers and sellers walk
Speaker 1: us through the market structure a little bit. So a
Speaker 1: farmer in Ghana grows coco, then what what is the
Speaker 1: sort of supply chain at which the clearing price of
Speaker 1: cocoa is set? Yeah, you know, and interestingly, you know,
Speaker 1: the prices set on the futurest market, which is not
Speaker 1: people operating on the ground. And so you know, the
Speaker 1: people trading futures are not coco farmers. So there's two
Speaker 1: future markets for cocoa in New York and London, and
Speaker 1: the people making those decisions are definitely not the on
Speaker 1: the ground traders, their futures traders, and so they're sitting
Speaker 1: at desks in New York and London and making these decisions. Um,
Speaker 1: so the price is set in a bit more of
Speaker 1: a top down fashion. However, those traders rely on reports
Speaker 1: from people who are on the ground. And so those reports,
Speaker 1: of course are you know, about everything we've been talking about,
Speaker 1: the weather, the productivity of trees, the farmer enthusiasm, the politics. Right,
Speaker 1: so the information from the ground feeds into those those
Speaker 1: traders sitting at their desk in London and New York.
Speaker 1: But then the price is really set at that level.
Speaker 1: I'll answer your question and talking through the the steps
Speaker 1: and just with the caveat that they're they're different in
Speaker 1: Ghana to where they in other countries. And the reason
Speaker 1: is because Ghana has a very highly regulated market where
Speaker 1: the government controls many aspects of the trade of cocoa.
Speaker 1: And so the first thing that a farmer would do
Speaker 1: is they sell to a buyer. In Ghana, there are
Speaker 1: licensed buying companies and so there's you know, maybe two
Speaker 1: dozen of them that operate in the country, maybe ten
Speaker 1: or twelve of them are significant in terms of market share,
Speaker 1: and those buyers tend to farmers organized in their villages
Speaker 1: and decide more or less together which of those buyers
Speaker 1: they're going to sell to. In the case of Ghana,
Speaker 1: those buying companies then sell their cocoa to Ghana Cocoa Board,
Speaker 1: which is a government body, and then Coco Board exports that.
Speaker 1: So Ghana has a little bit of a different structure
Speaker 1: that some of the other places which are not as
Speaker 1: highly regulated. So is the majority of coco production in Africa? Then?
Speaker 1: Is that still mostly done on an independent basis? Do
Speaker 1: we not have big corporate plantations? And if not, why
Speaker 1: hasn't that happened? Because you would assume that you know,
Speaker 1: companies that are demanding large amounts of cocoa would try
Speaker 1: to secure their supply. Yeah, that's a great question. There's
Speaker 1: very little plantation agriculture in cocoa, and so you tend
Speaker 1: not to see the big kind of corporate plantations that
Speaker 1: you that you're talking about. They they exist, they're they're
Speaker 1: around um and they might not even be owned by
Speaker 1: a big chocolate company. They might just be owned by
Speaker 1: a wealthy individual or a private company. But the estimates vary.
Speaker 1: Of all cocoa is grown by smallholders, and so we're
Speaker 1: talking about individual farmers who may farm their on land
Speaker 1: or rent it out to someone else to farm, but
Speaker 1: very very very small amounts. And so, you know, to
Speaker 1: to get back to to Joe's question from earlier, there's
Speaker 1: there's five million estimated coca farmers in the world. Each
Speaker 1: one of them is selling to a buyer, and of
Speaker 1: course there are fewer numbers of buyers, but still a
Speaker 1: lot um. And then from there on up we start
Speaker 1: to see the trading structure narrow really really quickly. So
Speaker 1: we're talking about millions of farmers at the base, probably
Speaker 1: millions of traders also who they're selling to and then
Speaker 1: when we start to see the number of actors involved
Speaker 1: kind of diminished pretty rapidly. I want to ask another
Speaker 1: question about the supply side of that is the degree
Speaker 1: of labor intensiveness of the crop. I know there's some
Speaker 1: crops like grains, where you don't need a lot of labor,
Speaker 1: can be done with a lot of machinery. How how
Speaker 1: labor intensive is the actual planting and collecting of cocoa.
Speaker 1: It's really it's it's really labor intensive. And and it's
Speaker 1: such a good question because I think, you know, if
Speaker 1: you think about the crops that we you know, grow
Speaker 1: in America, wheat and soy and even corn, they can
Speaker 1: be macoganized, mechanized so much more easily, you know, And
Speaker 1: so wheat is a really nice comparison because you know,
Speaker 1: wheat's been basically engineered to all grow at the same
Speaker 1: height and all ripen at the same time, so that
Speaker 1: a harvesting machine can just go through that field and
Speaker 1: cut off all of the ripe, you know, wheat grains,
Speaker 1: you know, at the same time. The opposite is true
Speaker 1: for cocos. So you know, the trees do not the pods.
Speaker 1: The cocoa pods do not all ripen at the same
Speaker 1: time the tree. They ripen pretty much year round. There's
Speaker 1: no real way to mechanize the harvest. It's got to
Speaker 1: be done by hand. So each of those cocoa pods
Speaker 1: is pretty big. Some of them can get almost as
Speaker 1: big as like an American football, and they're around the
Speaker 1: same they're about the same shape, and so they grow
Speaker 1: on the trunk, they grow on some of the larger branches,
Speaker 1: and and you can imagine you've got these big pods
Speaker 1: sticking out from all around the tree, including on the trunk.
Speaker 1: I mean, how could you mechanize that? And so so
Speaker 1: really it's the labor of harvest. It's the labor of
Speaker 1: breaking open those pods and scooping the seeds out, you know,
Speaker 1: and of course all of the farm labor that goes
Speaker 1: into it. So imagine you're in a tropical rainforest. That's
Speaker 1: coco's home, that's where it's it's indigenous to rainforest. That's
Speaker 1: not easy environmental work, and everything wants to grow there, everything,
Speaker 1: and so you know, a lot of cocoa farm labor
Speaker 1: is just keeping the farm clean, you know, doing the weeding,
Speaker 1: which is not like pulling out a dandelion flower. We're
Speaker 1: talking about some pretty hafty weeds that that need constant
Speaker 1: removal and and maintenance. So I think pretty labor intensive
Speaker 1: is the short answer to your question. So before we
Speaker 1: move on to the demand side, have one more question
Speaker 1: on production related to your point about labor intensiveness. You
Speaker 1: mentioned that the price of cocoa, it's set on the
Speaker 1: futures market way out in the west, but the people
Speaker 1: setting that price rely on on the ground reports about production.
Speaker 1: I'm just wondering how much of the futures prices that
Speaker 1: are set actually trickled down to cash payments for the farmers.
Speaker 1: Is it possible that there's a big rise in the
Speaker 1: futures price for coco, but that doesn't necessarily entirely filter
Speaker 1: down to the farmers. There is a relationship, and so
Speaker 1: you know, if we take on out of the equation,
Speaker 1: because here in Ghana, the government sets the producer price
Speaker 1: every year and so they say how much the farmers
Speaker 1: are going to get. And while that price does generally
Speaker 1: follow the futures price because they set the price per season,
Speaker 1: which is October through March, ish is the is the
Speaker 1: productive pie. You know, the futures price might change a
Speaker 1: lot during the season, but that price is fixed for
Speaker 1: the duration. There's a similar situation Ivy Coast where they
Speaker 1: set a minimum price. It's not as enforced. It's not
Speaker 1: as enforced as well as it isn't gonna um. But
Speaker 1: in all of these cases you have the futurist price
Speaker 1: setting the that's the starting point, right, and over time,
Speaker 1: as the futurist price moves up and down, we see
Speaker 1: what we call farm gate prices, which is the price
Speaker 1: that the farmer actually receives, you know, when she or
Speaker 1: she settles their coca. We see farm gate prices also
Speaker 1: move with the futurist price, but as you can imagine,
Speaker 1: it doesn't happen instantaneously. And it's also because we're dealing
Speaker 1: with five million cocoa farmers in the world and no
Speaker 1: real mandate to collect all the price information from them.
Speaker 1: It's a little bit challenging to say exactly how much
Speaker 1: farm gate price changes and when it changes when the
Speaker 1: futures price changes, but generally, over time we do see
Speaker 1: the two following each other. All right, let's talk a
Speaker 1: little bit about who is buying the cocoa. So we've
Speaker 1: established that so much of the world's coco comes from
Speaker 1: a few specific locations, highly concentrated. The buying is also,
Speaker 1: I imagine pretty concentrated. I what percent of the world's
Speaker 1: coco is bought by a few big sweets companies like
Speaker 1: nest Lee and uh Cadbury. I imagine that that we're
Speaker 1: all familiar with, oh, most of it. So, you know,
Speaker 1: if we look at the structure of the industry, I said,
Speaker 1: it narrows on the way up, and so you've got
Speaker 1: millions of cocoa farmers. But then at the other end,
Speaker 1: you just got a very few companies who predominate. And
Speaker 1: so of course there are lots of chocolate companies, there
Speaker 1: are lots of coco processors. But when we look at
Speaker 1: the big ones, the ones with the really the signific
Speaker 1: get market share in anyway, what we call them mature
Speaker 1: chocolate markets, which are the kind of oldest industrial chocolate markets.
Speaker 1: In ub in North America, we're looking at five chocolate
Speaker 1: companies and three processors, you know, and so between these
Speaker 1: companies they are really doing most of the buying. That's
Speaker 1: not just they're not the only ones, obviously, but they're
Speaker 1: the biggest ones. So those are the fundamental sources of demand.
Speaker 1: Those big chocolate companies buying up coco. But are there
Speaker 1: speculative sources of demand or speculative entities that are also
Speaker 1: having an impact on price, Because when it comes to commodities,
Speaker 1: one of the conversations that we're always having is, you know,
Speaker 1: the paper versus physical price and the degree to which
Speaker 1: speculative traders are actually impacting prices away from actual on
Speaker 1: the ground demand. The futures market for coco is definitely
Speaker 1: populated by by speculators as well as hedger you know,
Speaker 1: when we say hedgers on that market, we're talking about
Speaker 1: the big chocolate companies and the big processors who are
Speaker 1: hedging their bets against a future price rise by buying,
Speaker 1: you know, on the futures market. But absolutely speculators are
Speaker 1: active in Coco futures. And the reason for that is because,
Speaker 1: I mean, as we've been talking about this whole time,
Speaker 1: coco is a commodity. It's price is volatile, and any
Speaker 1: time you have a volatile price for for a good,
Speaker 1: you've got the opportunity to place a bet on it
Speaker 1: and potentially have a pretty big payoff. And so for sure,
Speaker 1: I mean, Coco is very popular amongst speculators and in
Speaker 1: those cases, they rely on the same information coming from
Speaker 1: the ground. You know, they also need to be informed
Speaker 1: about about disease outbreaks amongst coco trees, which we haven't
Speaker 1: really talked about. They need to be informed about whether
Speaker 1: they need to be informed about politics. They're using all
Speaker 1: that same information, but not because they want to make chocolate,
Speaker 1: but because they want to make a well educated guess
Speaker 1: on what's going to happen to that price. And so
Speaker 1: for sure, for sure, you know, with various commodities, of course,
Speaker 1: there are certain data points that people look at to
Speaker 1: sort of establish the fundamentals of supply and demand. With
Speaker 1: corn and we we might look at acreage or or plantings,
Speaker 1: and with oil, people might look at the latest rig
Speaker 1: count data in the US. I know in the cocoa
Speaker 1: market because I see the headlines from time to time. Uh,
Speaker 1: there's something called the grindings data and what but I
Speaker 1: don't even know what that is. What is the grindings data?
Speaker 1: And what is that information telling us? What is grinding?
Speaker 1: So grindings happen after the farm, so on the farm,
Speaker 1: Cocoa is still an agricultural commodity. Once it gets into
Speaker 1: a factory, it starts to change into a manufactured good,
Speaker 1: a manufactured item, just like a toy or electronics or
Speaker 1: manufactured chocolate is manufactured. And the first step is grinding
Speaker 1: the beans. And so cocoa beans are really the seeds
Speaker 1: of the fruit, and so that's what we make chocolate
Speaker 1: out of, is the seed. They're pretty big seeds, they're
Speaker 1: like maybe a bit bigger than an almond usually, and
Speaker 1: those those seeds are fermented usually and then dry and
Speaker 1: then they're really really really hard, like a pebble, and
Speaker 1: you've got to grind them down, and so you that's
Speaker 1: the first step into making them usable. So you could
Speaker 1: eat one in it's just sort of whole state, but
Speaker 1: you wouldn't have a very maybe like emotional experience with that,
Speaker 1: and you could meet a lot of them. So the
Speaker 1: way we get cocoa to be usable is we grind
Speaker 1: it and it grind down. It's so so so fine
Speaker 1: to such a small particle size that it turns into
Speaker 1: almost a liquid. It's like a paste. And then from
Speaker 1: that paste is where we can start to make all
Speaker 1: chocolate and chocolate factionary kids. So grindings really refers to
Speaker 1: that that step of grinding, the being down like very
Speaker 1: literally and of course, like some symbolically, grindings is demand
Speaker 1: because you wouldn't be grinding beings down at all if
Speaker 1: people weren't demanding chocolate. Just clarifying, so what we would
Speaker 1: we see the grinding data flashing through the terminal that
Speaker 1: is a proxy for demand? Basically absolutely yes, because how
Speaker 1: could you measure, right, You couldn't really measure everybody's demand
Speaker 1: for chocolate, you know, we we have a vague idea
Speaker 1: of it. But the way you measure it is by
Speaker 1: how much the big processors and chocolmakers, how many how
Speaker 1: much coco they're grinding, They're they're grinding based on their
Speaker 1: own assessments of how much chocolate people are going to
Speaker 1: buy from them. It's very hard for me not to
Speaker 1: make a juvenile comment about grinding data flashing across the
Speaker 1: Bloomberg term. Um, but I'm going to try just to
Speaker 1: go back to the evolution of the market. Um, we're
Speaker 1: talking about speculative forces. I seem to recall a trader,
Speaker 1: a big commodities trader called Anthony ward Um, better known
Speaker 1: as chalk Finger, and I think he said he was
Speaker 1: gonna stop trading chocolate because, um, there was too much
Speaker 1: algorithmic trading in the market, So commodities trading advisors for
Speaker 1: instance c t a s coming into the market and
Speaker 1: just changing the way it works. Is that something you've
Speaker 1: observed as well, Christie, the algorithmic trading, Yeah, in the
Speaker 1: futures market. Yeah. And I mean so I won't pretend
Speaker 1: to be able to explain that aspect, but um there,
Speaker 1: you know, I was actually just reading about it this morning.
Speaker 1: I tried to read the Coco News every day, and
Speaker 1: they're just there's actually a few articles out about this
Speaker 1: algorithmic trading. Um. And yes it happens, and yes it
Speaker 1: is computer programming making predictions, you know, and and taking
Speaker 1: some of maybe the guessing away from human beings. Um.
Speaker 1: And I think a couple of things about that, you know.
Speaker 1: One is it further divorces people from you know, on
Speaker 1: the trading side, the future trading side, from the experience
Speaker 1: of cocal farming. I mean, they're already pretty far away
Speaker 1: from it, but that that algorithmic training, you know, makes
Speaker 1: it even that much more distant, and I think probably
Speaker 1: much easier for people to forget them that they're talking
Speaker 1: about real farmers, like real live human beings whose livelihood
Speaker 1: depends on, you know, in some ways now what an
Speaker 1: algorithm tells us um At the same time, those algorithms
Speaker 1: are using the same data that we've always used, and
Speaker 1: maybe the data is becoming more abundant, maybe it's becoming
Speaker 1: more precise, you know, in terms of weather forecasting and
Speaker 1: things like that, but it's it's still going to I
Speaker 1: don't think there's been a fundamental change, you know, in
Speaker 1: in how we predict what the price of coco is
Speaker 1: going to do. I mean, there's lots of variables, but
Speaker 1: there's only so many that that are really meaningful. So Christie,
Speaker 1: before we wrap up here, what is the next big
Speaker 1: thing that people in the coco market are thinking about
Speaker 1: and watching for these days? The big word that we
Speaker 1: hear about all the time in the cocoa industry and
Speaker 1: have been for some time now is this is sustainability
Speaker 1: and how sustainable is this crop? And there's lots of
Speaker 1: ways to measure sustainability, but what the big companies have chosen.
Speaker 1: These big companies that I was talking about, you know,
Speaker 1: the five chocolate manufacturers and the three processors and other
Speaker 1: large players, they're basing sustainability on on coco yields and
Speaker 1: by yields, I mean how much fruit is any coco
Speaker 1: tree growing, right, And so if your yields are increasing,
Speaker 1: that means more pods on those trees and maybe more
Speaker 1: beans inside those pods. Um and that is what the
Speaker 1: big companies want. And so what we've seen recently, you know,
Speaker 1: really recently in the last couple of weeks, but also
Speaker 1: based on you know, conversations over the last few years,
Speaker 1: is that for the big company's sustainability and cocoa really
Speaker 1: means increasing yields. And that is hugely problematic from a
Speaker 1: number of perspectives, but mainly from the perspective of a
Speaker 1: cocoa farmer. And I'll just just really briefly describe what
Speaker 1: that scenario would look like. And so there was a
Speaker 1: big World Coco conference in Berlin a couple of weeks ago,
Speaker 1: and one of the goals that came out of it
Speaker 1: was to double yields. What that would if we doubled
Speaker 1: the amount of cocoa being grown in the world, there
Speaker 1: is only one price outcome, and that is a fall.
Speaker 1: You know, there's no possible scenario where demand for chocolate
Speaker 1: rises so much that it counteracts the um you know,
Speaker 1: the price all that would come from doubling yields. And
Speaker 1: so my question, really, you know, as we move forward
Speaker 1: into this in in this conversation in the industry, is
Speaker 1: how does doubling cocoa yields help a farmer if they
Speaker 1: even if they grew twice as much cocoa, they would
Speaker 1: be looking at a price that was a fraction of
Speaker 1: the value of what it is now. And I just
Speaker 1: don't think the math works. I don't think the math
Speaker 1: of doubling how much cocoa you're growing works out to
Speaker 1: a better income for a farmer if the price has
Speaker 1: been utterly devastated by a superabundant supply. And so you know,
Speaker 1: right now, I think we're in a moment in the
Speaker 1: cocoa and chocolate industries really where people are just struggling
Speaker 1: to come up with a solid, practical, you know, usable
Speaker 1: definition of sustainability UM and so far, I don't think
Speaker 1: increasing yields is our answer. So lots of work remaining
Speaker 1: to be done on that question, for sure. Christie. One
Speaker 1: question before you go, We've been building up to this
Speaker 1: moment your favorite chocolate. I knew it was coming. I
Speaker 1: will give you the real, honest answer, and so I
Speaker 1: whatever chalcolout I'm eating in that moment. I love chocolate
Speaker 1: so much. It has been my favorite food from my
Speaker 1: whole entire life. And I don't even really care if
Speaker 1: it's dark or mike or white, like I just I
Speaker 1: eat it every day. And so I'll tell you what
Speaker 1: I ate today. There's a new company and gone It's
Speaker 1: called Niche, and I ate some of their thirty percent
Speaker 1: milk chocolate. And that was my favorite today because I
Speaker 1: eat it today, so tomorrow it might be a different one. Christie,
Speaker 1: this is a fascinating conversation and I already can't wait
Speaker 1: to have you back again on the podcast, maybe in
Speaker 1: a couple of years as we see the evolution of
Speaker 1: uh these yields. Thank you so much for joining. Oh
Speaker 1: it was a lot of fun to talk. Thank you
Speaker 1: so much, Tracy. What is your favorite kind of chocolate? Oh?
Speaker 1: Do you really want to know, Joe, because I'm going
Speaker 1: to give you like a massive list. No, I do,
Speaker 1: I did? Ready? Yeah. I like green and blacks, I
Speaker 1: like milka. I like anything from Jack Torres in New York.
Speaker 1: There's one close to the Bloomberg office, so you know,
Speaker 1: if you're looking for a present for me, you can
Speaker 1: go there. I like toisture in Switzerland. I like Mozart
Speaker 1: coogl in Austria. I can keep going, by the way,
Speaker 1: but I better stop. This is amazing. I had no
Speaker 1: I mean, I I guess I think I knew that
Speaker 1: you like chocolate. I didn't realize you liked it with
Speaker 1: this degree of specificity and granularity. I think about it
Speaker 1: a lot. M As for my own personal chase, I
Speaker 1: don't really eat chocolate that much, but for me, the
Speaker 1: darker is better. At see, I was gonna ask, but
Speaker 1: I knew you would say that. Wait, so what do
Speaker 1: you think The darker the better? Darker the better. Okay,
Speaker 1: I'll remember that. I'll bring you some from the next
Speaker 1: chocolate friendly destination I go. Please do. But seriously, I
Speaker 1: found that conversation fascinating. And you're right. The chocolate market
Speaker 1: is defined by some very very specific factors like the
Speaker 1: weather and a few big buyers in the form of
Speaker 1: the chocolate companies. But it's also a really interesting structure
Speaker 1: with this network of mostly independent farmers and the way
Speaker 1: that interacts with the futures market. Yeah. Absolutely, that's what.
Speaker 1: Uh you know, It's as I was kind of getting
Speaker 1: at the beginning to some extent, all commodities to get
Speaker 1: reduced to some price that we could chart on his screen.
Speaker 1: But the origin of those prices is different for all
Speaker 1: of them. So you might have very industrialized commodities, but
Speaker 1: then other ones where you have someone on a phone
Speaker 1: calling up local sources asking them what their latest price was,
Speaker 1: or in this case, a network of five million cocoa
Speaker 1: farmers around the world with the prices said at local
Speaker 1: gates or local markets. So I love learning about the
Speaker 1: actual derivation of these, uh, these prices that we take
Speaker 1: for granted. Yes, and I have a newfound appreciation for
Speaker 1: the grinding reports can't say with a straight pain. Sorry,
Speaker 1: let's leave it there. This has been another edition of
Speaker 1: the ad Thoughts podcast. I'm Tracy Alloway. You can follow
Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why
Speaker 1: Isn't All? You can follow me on Twitter at the Stalwart,
Speaker 1: and you could follow Christie on Twitter at doc of
Speaker 1: Chalk really Enough, And you should follow our producer tofur
Speaker 1: Foreheads at foreheads t, as well as the Bloomberg head
Speaker 1: of podcast, Francesca Levy at Francesca Today. Thanks for listening.
Speaker 1: O