A London hedge fund Armajaro has bought 240.100 tons of cacao, a large chunk of the world’s stocks of cocoa beans, which led the prices to their highest level in 33 years. THis purchase is the biggest delivery from London’s Liffe exchange since 1996 and equal to about 7 per cent of annual global production.

Armajaro’s bold bet on higher prices comes as cocoa prices have risen 150 per cent over the past two-and-a-half years, prompting recession-hit chocolate makers to reduce the size of their bars and increase prices.

The hedge fund gained control of the beans by buying July cocoa futures and holding them until their expiry on Thursday.

Anthony Ward, one of Armajaro’s founders and the manager of its flagship fund, is well-known in the cocoa market for his bullish views. He has long warned of production problems in Ivory Coast, which grows 40 per cent of the world’s cocoa, and bet successfully on rising prices during previous rallies.

Cocoa output has fallen short of consumption for four years in a row, a run of shortages not seen since the 1960s.

Armajaro appears to believe that the market is going to spike significantly higher by September, traditionally the tightest period of the year as chocolatiers ramp up production ahead of Christmas and the main West African crop has not yet come to market. Although stocks of cocoa exist in warehouses not registered on any exchange, the delivery to Armajaro represents almost all the 270,000 tonnes of available stocks at Liffe-registered warehouses.

Some trade and industry sources said Barry Callebaut would be the end user of about 100,000 tonnes of the total said to be received by Armajaro. But others speculated that the trade house may hold onto the cocoa and not sell it, in anticipation of rising prices.

The rise in cacao prices due to the hedge funds' bets is an issue for the industry for sometime. In fact German industry organizations had sent a letter to Liffe fasking or controlling these bets. The expected outcome of the bet is an increase in chocolate prices all over the world. Dealers said the more heavily regulated New-York Intercontinental Exchange would require evidence of off-take sales contracts from anyone wishing to take a large delivery of cocoa like the one on the London market last week.