Cocoa supplies are suffering as the crop deteriorates. In the largest producing area, the Ivory Coast, cocoa farmers are forced to curtail spending on fertilizer and pesticides due to high prices. This in turn has sent the price of cocoa to 28-year highs.

A farmer in Daloa, a major cocoa growing area, says, "They tell us to spray the fields and put down fertilizer when it starts to rain in April, but we don't have the money. All the money goes on feeding and schooling the kids -- there's nothing left."

As a result of all this, candy manufacturers are raising prices. From this time last year, Lindt has increased prices 27%, Nestle 17%, and Cadbury 10%. The tasteful obsession of chocolate is but one reminder of the consequence of higher prices. And, it doesn't look like these price spirals will be going away anytime soon.

In fact, a great spread is being long cocoa futures and short Hershey (HSY:NYSE) -- you have the chance to get kissed on both sides!

From a trading and investing point of view, these "food inflation" opportunities are exciting. From a consumer standpoint, they are frightening. Inflation is ripping through our pocketbooks... and that's one reason why the Taipan portfolio has strategic positions in food and energy. We're hedging our cost of living and making solid profits to boot.

Sally Limantour
Editor, Taipan

 

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