End of Era for Cocoa as Sucden Boss Stops Trading After 50 Years

(Bloomberg) -- The chocolate world just lost one of its most influential traders.

Derek Chambers, the head of cocoa at Sucres et Denrees SA, ended his involvement in front-line trading this month after a career spanning half a century of the market’s ups and downs. He’s moved into an advisory role and the team he built is now led by Paul Davis, the former cocoa boss at Noble Group Ltd. who joined the Paris-based trader in 2016.

His exit comes at a challenging time for the market, with fewer and fewer traders serving a cocoa processing and chocolate industry that’s consolidating. On top of Chambers, hedge fund king Anthony Ward and Olam International Ltd.’s Amit Suri have also stepped back -- cocoa is losing many of the people who’ve dominated one of the commodity industry’s liveliest markets in recent decades.

“Derek has been involved in the most famous and infamous dealings in the cocoa market,” said Jonathan Parkman, co-head of agriculture at Marex Spectron Group, who has been in cocoa for more than 30 years.

Chambers, 68, has been key to Sucden’s profits in the past six years. As Archer-Daniels-Midland Co. exited the market entirely, Olam focused on processing and Ward closed his flagship fund due to the rising influence of algorithms, Chambers succeeded trading the traditional way.

"I’m a very one-dimensional trader: I look at cocoa," he said in an interview in Paris during his final weeks on the job. "I ignore the noise coming from other commodities, I ignore the noise coming from the stock market, the macro, because the fundamentals will over time dictate the price."

End of Era for Cocoa as Sucden Boss Stops Trading After 50 Years

After an injury forced him to give up ambitions of a military career in his native Britain, he joined London-based Paterson, Simons & Ewart in May 1968. Here he first learned the power of information: The firm, which processed cocoa in Ghana, had a telex machine with a rare direct link that allowed its traders to be first to get weekly cocoa purchasing figures, a key indicator of output.

"It was highly advanced, highly technologically advanced," he said. "I’ve always been interested on how you get an edge on everybody else."

By the mid-1970s, Chambers had moved to another London-based trader, J.H. Rayner, where he helped supply British chocolate maker Cadbury. At the time, the world faced severe shortages of cocoa.

Scandinavia Airlift

Chamber’s wasn’t able to get his beans out of overcrowded and chaotic Nigerian ports. He started trucking beans from Europe to the U.K. to prevent Cadbury from running out of cocoa and even embarked on an expensive deal to airlift cocoa from Scandinavia.

"We were within two days of them stopping before we finally got our Nigerian shipments -- it was not a time I ever, ever, ever want to repeat,” he said. "The thing that Rayner taught you is how much working with your customers is vitally important."

The 1980s saw Chambers go head to head with another high-profile trader -- Serge Varsano -- in an episode eventually recounted in a book titled "The Cocoa War."

A bumper crop prompted Felix Houphouet-Boigny, then president of the world’s top grower, Ivory Coast, to impose an embargo on cocoa sales in 1987. After an 18-month stalemate, Varsano convinced the president to sell him 400,000 tons of cocoa, half of which would be stored in Amsterdam with the sole objective of pushing up prices.

Forward Contracts

It left Chambers in a difficult position.

"We had been one of the companies that had seen the big crop coming and we had been one of the companies that sold the market," said Chambers, who was with American commodities giant Phibro at the time. "We owed cocoa to many people."

He went on the offensive and persuaded Ivory Coast to sell to him as well. He also took the other side of Varsano’s trades in forward contracts to ensure he’d get more beans delivered later on.

Like Varsano, Chambers assured the Ivorian president that his strategy would help prices, but neither trader could override market fundamentals and prices more than halved between the time of the embargo to the end of 1989.

When Chambers joined Sucden in 2011 after a decade-long break from the industry, it surprised many because it meant working for his former nemesis Varsano.

Bull Run

Despite the history, it proved a successful move: Chambers was able to take advantage of a bull run in the three years through 2015 because he understood early that prices were too cheap. He now believes the market is in for a re-run of those years.

"Both Ivory Coast and Ghana sold really aggressively and strongly into the market and now have relatively little to sell for the 2018-19 crop," he said, adding that speculators bought. "The chocolate industry has made a mistake not buying for the last three months."

Despite optimism about the prices, Chambers has criticisms of the industry -- especially the chocolate industry’s push for sustainability in cocoa cultivation.

"The business that has grown up around the need for sustainability does not benefit the farmers anywhere near as much as it does the NGOs, companies and individuals involved in the circus," said Chambers. "It is a great regret of mine that farmers in West Africa were poor when I came into the business and are still poor, probably even poorer now."

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