The UK’s Brexit vote shook the cocoa futures market in 2016, pushing the commodity that is priced in sterling to levels not seen in decades.
Six months on, traders are feeling a new aftershock from the UK referendum following a filing for bankruptcy protection at the end of December by the US subsidiary of a top 10 cocoa processor Transmar Group.
Transmar Commodity Group filed for Chapter 11 in the US bankruptcy courts in New York with debts of more than $400m, according to court filings. Its problems stem primarily from financial issues at its European affiliate Euromar, whose financial predicament worsened after the UK voted in June to leave the EU.
The latest saga has added to the jitters surrounding cocoa, which despite its surge after the UK referendum, was one of the worst commodities performers in 2016, losing almost a quarter of its value.
According to court filings, during 2013 and 2015, Euromar took on “various unfavourable forward purchase contracts, including certain unhedged forward contracts, which resulted in enormous losses”. The Brexit vote had “further significant negative impact on the liquidity of Euromar”.
The financial woes surrounding Euromar led to a severe shortage last year of cocoa butter, processed from cocoa and a key chocolate ingredient. This wreaked havoc in the physical cocoa markets, causing pain for chocolate manufacturers.
It also had a devastating impact on Transmar Commodity Group. As affiliates owned by the Transmar Group, the two companies traded with one another with intercompany claims settled at the end of each year. Financial support from Transmar Commodity Group and Japanese trading company Itochu, which bought 20 per cent of the parent group in early 2016, failed to resuscitate Euromar, which filed for insolvency in Germany at the start of December.
The European affiliate’s inability to pay Transmar Commodity Group for the products it bought, as well as the burden of financial support, ultimately led to the US division’s bankruptcy filing.
According to the court filings, Transmar Commodity Group has more than 350 commercial customers, including Hershey, Mars and Nestlé.