What Market Fundamentals Can
Affect The Cocoa Futures?
The
cocoa tree needs a hot and rainy climate in order to thrive. The geographic production is very concentrated. Production is
generally confined to areas not more than 20 degrees north or south of the equator. The cocoa tree takes about five years
after planting to produce cocoa beans, and about ten years to achieve maximum production. Most cocoa is harvested between
October and January.
When you are considering a trade in
the cocoa market some of the basic fundamentals that you should consider are:
1. Côte d'Ivoire(Formerly Ivory Coast) Côte d'Ivoire is a country in West
Africa. It was once a French colony. French settlers introduced cocoa to the area, and because of the favorable climate and
soil conditions Côte d'Ivoire remains by far the largest cocoa producer in the world. It accounts for over 40% of
global production.
In 2002, a civil war broke out.
Although most of the fighting ended by law 2004, the country remains divided into a rebel-held north, and a government-held
south. The civil war created tremendous price volatility in the cocoa market. The market remains very sensitive to any
threat of political turmoil in Côte d'Ivoire.
2.
FDA US food industry groups are currently lobbying the FDA to would allow the substitution of other vegetable fats
for cocoa butter in chocolate products with the resulting products still being labeled as “Chocolate.” If they
are successful, then cheaper and more widely products will start to compete with cocoa.
3. Disease Cocoa like any crop is susceptible to disease. The most serious threat to the African
crops is black pod disease. Black pod disease is a fungal disease that thrives in wet and damp conditions caused by heavy
rain. In 2007 black pod disease wiped out nearly 40% of Nigeria's cocoa production.
The most serious threat to South American crops is a fungus called “witch’s broom.”
In the 1980s - 1990s this fungus devastated Brazil's cocoa crop. As a result, Brazil went from being the world's
third-leading cocoa producer to being the 13th.
4.
Demand Cocoa is mainly consumed in Europe, North America, Japan and Singapore. The Netherlands and the United States
each process about 15% of the world's annual cocoa production. The Quarterly Cocoa Grind numbers measure of the amount
of cocoa demand. A higher grind number means demand is increasing.
These are just some of the basic fundamentals to keep in mind when you are considering
a trade in the cocoa market. The geographic concentration of cocoa production, and the political instability of the major
producers makes it a very volatile market. Therefore, before opening up a commodity account to trade cocoa you should consult
with a licensed commodity broker that follows the cocoa market to discuss investment strategies
