Trading Cocoa: Sweet or Bitter in 2023?
How many times have you read about trading cocoa? The answer is probably not too many. Agricultural commodities are a big part of global trading activity. Cocoa is an important commodity traded worldwide as it is one of the basic ingredients of our everyday diet.
Many factors affect cocoa’s supply and demand. In this blog, we will share the necessary information that beginner traders should have at their disposal regarding trading cocoa.
Learn the fundamentals of cocoa
Archaeological research has shown that the cacao tree was first domesticated in equatorial South America. Archaeologists suggest that the Olmecs in Central America consumed cocoa beans between 1500 and 1400 BC. Cocoa beans were used as currency in trading activities between tribes in Central and South America before the Spanish conquistadors made landfall.
Spanish invaders were thrilled with cocoa beans and brought them back to Europe, where the beverage became quite popular during the 17th century. The Spanish began establishing cocoa plantations during their conquest of the native tribes in order to provide Europe with cocoa and launch a highly lucrative trading enterprise.
Cote d'Ivoire (Ivory Coast), Ghana, and Indonesia are the countries that produce the most cocoa beans in the world. Generally speaking, cocoa beans come from quite humid regions and are very close to the equator. The United States, the Netherlands, and the United Kingdom are the major producers of cocoa-based goods.
Trading cocoa: Price fluctuations
As you can see in the graph below, 2018 was a turbulent year for cocoa trading. On April 1st 2018, US Cocoa traded at $2,821 per metric ton, falling to $2,009 per metric ton on September 1st 2018. Since then, there have been many fluctuations depending on supply and demand.
On October 26th 2022, US Cocoa traded at $2,252 per metric ton. The agricultural commodity seems to be gaining ground in the last few months, recording a multi-month high in mid-February 2023.
The price of cocoa depends on many factors. Some of them are weather conditions and climate, geopolitical uncertainty, crop diseases and labour issues.
Cocoa production hurt by weather conditions?
Data published by GEPEX, a group including 6 of the world's largest cocoa grinders, announced that Ivory Coast's cocoa grind was up 16% year on year in February 2023 to 58,452 tonnes.
The total grind from the start of the 2022/23 season in October stood at 292,195 tonnes of beans by the end of February, up almost 12% on a yearly basis.
A report by Investing.com, published on February 15th, said that the North American cocoa grind, a measure of demand, fell 8.13%, on an annualised basis, in Q4 2022. Based on this data, market analysts suggest cocoa prices could remain elevated for the next 3-to-4 months. However, beginner traders should take into consideration that the cocoa market is volatile as various external factors, such as weather conditions for example, could influence supply and demand.
Ivory Coast restricts cocoa beans purchases
A Reuters report published on February 23rd revealed that Ivory Coast's cocoa regulator restricted 20 major traders, including Cargill and Barry Callebaut, from purchasing beans for export after they reached their buying limits.
Cargill Inc and Barry Callebaut are the country’s largest cocoa grinders and the biggest buyers of cocoa beans produced in Ivory Coast. The two companies announced that they have entered into negotiations with the Coffee and Cocoa Council (CCC).
Reuters sources suggested that the measure may still not be enough as below-average rainfall and poor weather conditions in the past few months have hurt production. However, weather conditions seem to have improved in February as a report from Ivory Coast said that “unseasonably heavy rainfall in most of Ivory Coast's cocoa growing regions last week will help to improve the size and quality of the April-to-September mid-crop.”
Empower your trading with education
Even though commodities such as metals, energies and others may sometimes be less volatile trading instruments compared, for example, to currency pairs, you shouldn’t forget that trading involves risk. Beginner traders may enjoy the thrill of trading as volatility could boost adrenalin. Quite often, beginner traders tend to engage in trading and lose hard-earned funds due to insufficient preparation. Achieving your financial goals should not be linked to excessive trading, especially if you are just starting.
How can beginner traders improve their performance? The answer is education. Experienced traders and trading analysts underscore the importance of studying how trading works. There are various trading techniques that beginner traders should know about. More importantly, there are risk management tools that could reduce the possibility of a trading mistake and help you achieve your trading goals.
There are many resources that you could use to upgrade your trading knowledge. Brokers offer access to webinars, seminars, e-books, tutorials prepared by experts and sometimes without any extra cost. Dedicating some time to improving their trading knowledge would be an excellent path forward for beginner traders.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
