Cocoa prices

Did you know that cocoa was once traded as a form of currency? Today, this soft commodity now forms a key ingredient in some of our most popular sweet treats, most notably chocolate. What’s it like to partake in online cocoa trading? The global cocoa market is said to be worth more than $2 billion. The biggest producers of cocoa reside in West Africa, with Cote d’Ivoire (Ivory Coast) and Ghana proving the world’s biggest producers, totalling 1.45 million tonnes and 0.84 million tonnes respectively.

There are three varieties of cocoa beans grown and produced worldwide – Forastero, Criollo and Trinitario. Almost four-fifths of production is reserved for Forastero beans, while the rarest cocoa bean is the Criollo bean, accounting for just 5% of all beans grown. Trinitario is a ‘hybrid’ variant, designed to provide a middle ground between high and middle-range cocoa beans at an acceptable price point for consumers.

The price of cocoa is influenced by multiple factors, which can cause demand to outstrip supply and vice versa. Plantations of cocoa beans are particularly susceptible to harsh weather conditions. These environments demand consistent rainfall and hot temperatures. Not enough rain or too much can yield poor crops, causing cocoa supply to diminish and prices to rise. Cocoa production has also been a notoriously cheap labour industry. If labour laws improve working conditions for cocoa plantation workers, this can eat into the profits of cocoa producers and the eventual market price.

There are almost two centuries of price data on cocoa, but this soft commodity dates back much further than this. In fact, cocoa was used as a unit of currency in the Aztec and Mayan society. Throughout the mid-to-late 19th century, the price of cocoa remained stable at around $400 per tonne. The commencement of cocoa production in Africa during the early 20th century saw cocoa prices fall by more than 50% due to the increased supply. The 1970s brought what’s now affectionately known as the ‘Great Cocoa Boom’. The price of cocoa soared from $500 per tonne in 1971 to more than $5,700 per tonne in 1977. This was driven by two factors – the rising demand of chocolate bars, in particular Hershey’s milk chocolate, and shortfalls in production from Ghanaian cocoa plantations.

The post-millennium era has seen the cocoa price rise significantly, due largely to political instability. Civil war and a potential military coup in the Ivory Coast saw prices rise again, with more political tensions in West Africa seeing it peak at $4,200 per tonne in March 2011.

Cocoa trading is often made using futures contracts. These contracts state a date and price at which you are obliged to buy the underlying commodity. Futures contracts for cocoa are usually traded via the Intercontinental Exchange (ICE).

If you decide not to own the underlying asset of cocoa, you can also buy or sell the share price of companies heavily invested or susceptible to cocoa production. Chocolatiers like Lindt would be an intriguing stock to trade. There are also exchange-traded funds (ETFs) that comprise a basket of equities inspired by soft commodities like cocoa.