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How To Trade Cocoa Futures

cocoa price study

Cocoa futures are traded in New York on the ICE. Cocoa is an important food crop that is consumed around the world. As a cash crop it is a key export commodity especially for the West African countries that produce most of it.

The highly complex supply chain involves a vast number of parties that include farmers, cocoa buyers, shippers, processors, manufacturers, chocolatiers, and distributors.

Where Are Cocoa Futures Traded?

Cocoa as a commodity has been trading since 1925, initially on the floor of the New York Cocoa Exchange, which later became part of the Coffee, Cocoa and Sugar Exchange. Today, cocoa futures and options are traded on the New York Board of Trade which was later renamed ICE Futures US in September 2007.

Major Cocoa Suppliers

The ICE Futures U.S. Cocoa contract is one of two primary benchmarks for world cocoa prices, but the vast majority (about 90%) of the world cocoa supply comes from small family-run farms, and the cultivation of the cocoa crop at the farm level is a highly sensitive matter because yields of the cocoa bean from which the commodity is derived from are highly susceptible to changing conditions such as weather patterns, plant diseases, insects, and local political conditions. These factors contribute to the high degree of volatility in the price of cocoa.

Best Places To Grow Cocoa

Cocoa trees grow mostly in regions of the earth located inside of ten degrees latitude north or south of the Equator. Ideal growing conditions include hot, tropical, rainy regions that feature lush plant and tree growth to offer adequate shade for the cocoa tree. The nature of these specific growing conditions means that most of the world’s cocoa crop comes from Ghana and the Ivory Coast in West Africa.

Cocoa Planting And Growing Season

In contrast to other agricultural commodities, cocoa does not have any regular planting and growing season. Cocoa trees can live to be 100 years old and can bear fruit all year round. The main harvest seasons for cocoa in Ghana are September to March, and mid-May to August. In Ivory Coast harvesting is done during October to March, and mid-May to August.

The fruit of the cocoa tree is a pod inside which is a sweet pulp we know as cocoa butter, and about 30 seeds or “beans” which when roasted and ground up produce cocoa powder. Cocoa butter along with the processed cocoa powder is later recombined to form chocolate. About 400 dried cocoa beans are required to produce about one pound of chocolate.

Daily Cocoa Prices (ICE)

Uses Of Cocoa

Cocoa is essential for the manufacturing of chocolate for baked goods and candy making. Chocolate is consumed the world over. In the U.S. alone about 3 billion pounds of chocolate is consumed annually. Switzerland is the world leader in the per capita consumption of chocolate at about 22 pounds per person.

What Moves Daily Cocoa Futures Prices

Daily cocoa futures prices can be influenced by a wide array of factors that include grind ratios, farm production and demand forecasts, overall global food prices, as well as the consolidation or fragmentation of producers and processors within the industry.

Temporary price spikes reflected on the cocoa futures chart are known to occur when investment funds take a long position in the front month of the contract. Extreme weather conditions, political instability and conflict in producing countries, currency fluctuation, and news reports concerning delayed transport of the product are likewise known to support short-term price spikes in cocoa.

Price collapses are often attributed to forecasts of favorable growing conditions in the growing regions, government subsidization of fertilizers and insecticides for farmers, expectations of above average crop yields and/or higher stockpiles, and a decrease in demand expectations from the producers of chocolate products.

cocoa point and figure chart

Historical Highest And Lowest Cocoa Prices

The known historical price of cocoa has averaged 1,710 dollars per metric ton between 1970 and 2011. The highest recorded price for a cocoa was $5,368 which occurred on Friday February 4th, 2011. In inflation-adjusted terms that price would not represent a record high however. In July of 1977 the price of $5,300 per ton would be the equivalent of more than 19,000 in today’s dollars.

The record low for the commodity was recorded in December of 1971 at $450 per ton.

Price Movement Of Cocoa Futures

In economic terms, cartels work for producers rewarding them with a scarce and valuable commodity. The prototypical example of this would be OPEC for oil and Cargill for eggs, cooking oil and beef products for large fast-food chains.

The nations of Ghana and Ivory Coast, having long failed to form a cartel to aid them in holding up prices, do not presently enjoy the benefits of a cartel, therefore; prices on the cocoa futures market are expected to remain unsupported and subject to wild and frequent price fluctuations.