Market Analytics and Considerations
Key Notes
The soft commodity sector of the raw materials asset class includes futures contracts for cocoa, which are traded on the Intercontinental Exchange (ICE). While cotton, sugar, coffee, and frozen concentrated orange juice are all in the same class as cocoa, there are several key differences in the delivery of these commodities. Brazil is the 4th grower of cotton in the world and the global highest producer of sugar, coffee, and FCOJ. Although Brazil is the 9th producer of cocoa, West Africa produces the majority of the world’s annual production. The Ivory Coast is the biggest producer, followed by Ghana in 2nd spot, Nigeria in four, Cameroon in eight, and Sierra Leone in tenth.
In 2022, there hasn’t been a lot of price volatility for cocoa. The price motion has been sluggish since November 2020, when it probed above the $3,000 mark. The iPath Cocoa Subindex TR SM Index ETF product (NIB) follows the upward and downward movement of ICE cocoa futures.
A range of $598 per ton in 2022
Several commodities hit multi-year high points in 2022, and some even hit new all-time high points. Cocoa futures traded in a $598 spread, with a bottom above the bottom of 2020 and a peak underneath the peak of 2021.
late in the month of September 2022. In 2022, cocoa prices were mainly range bound, with the value ranging on either sides of the $2,400 per ton mark. On December 9, nearby cocoa futures for March shipment reached an almost $2500 per ton closing price.
A persistently bullish pattern
Since the beginning of the century, cocoa prices have been rising.
When looking at the long-term chart, it is clear that there has been a bullish skew over the previous few years, with cocoa futures often trading around $2,000 to $3,000 per ton
The value of the British pound affects cocoa.
Europe has long served as the center for the trading of cocoa because West Africa is the largest producer and many chocolate companies have their headquarters there. In addition to the manufacturing connections, London, a major financial hub, shares the same time zone as Accra, Ghana, and Abidjan, Ivory Coast.
Many physical contracts use the British pound to pricing cocoa beans and cocoa goods since the U.K. serves as a global center for the trade of cocoa. The price of cocoa typically rises when the pound’s value relative to the dollar increases. Prices for cocoa frequently decrease when the pound weakens. The most recent case occurred on September 26, 2022, when the price of cocoa for delivery in March 2023 fell to $2,190 per ton, the cheapest amount that since middle of 2020.
The exchange rate between the U.S. dollar and the pound peaked in November 2007 at $2.1161. During that time, cocoa prices had been steadily rising, climbing from $674 in 2000 to a peak of $3,826 in March 2011. The price of cocoa futures was increasing above $2,000 per ton in November 2007.
Since the low of $1,769 per ton in June 2017, the price of cocoa has primarily produced higher lows and higher high notes, as which emphasizes the commodity’s bullish tendency.
The path of least resistance for cocoa prices each year is determined by a number of factors, including the pound and the political stability in West Africa. The worldwide demand for cocoa has also been influenced by supply chain problems and strains on inflation globally. While Ivory Coast inflation, at 6.3% in November 2022, was less than that of the United States and Europe, it exceeded 40% in Ghana in October 2022. All commodity prices are under rising pressure from inflationary forces, and cocoa isn’t any different.
In order to reduce or end child labor, chocolate producers have started collaborating with West Africa on sustainability projects. To encourage adult and decrease juvenile labor, the top chocolatiers have paid their West African suppliers a $400 per ton premium for their priceless cocoa beans. Since the region produces more than 60% of the world’s cocoa beans, the premium has helped keep cocoa prices stable in recent years.
