A Cocoa Conundrum!

| December 18, 2013 | 0 Comments

cocoaThe holidays are here once again.  It’s the time of year for family, friends, and giving thanks for all our blessings.

Oh yeah, and it’s the perfect time for chocolate… 

I don’t know how it is in your house, but in mine, chocolate is a holiday mainstay.  Hot cocoa, M&Ms, cookies, you name it.  Not a day goes by without a hefty dose of this sugary delight.

But listen to this…

Recent data tells us we better enjoy our chocolate while we can.  Cocoa, an essential ingredient to chocolate, is surging in price thanks to a rapidly developing global supply crunch. 

And that means we’ll eventually see higher prices for chocolate in the grocery aisle.

What’s sending cocoa higher?

According to the International Cocoa Organization (ICCO), the supply/demand balance for cocoa is quickly turning upside down.  Global consumption is growing rapidly while supplies are not. 

Where is all this extra demand coming from?

For the most part, China…

As Chinese income levels increase, more consumers are capable of splurging on chocolate.  In fact, sales have nearly doubled over the past 10 years, pushing Chinese consumption past that of Europe.

What’s more, the general recovery in the global economy is pushing chocolate consumption closer to pre-financial crisis levels.

This surge in global demand has cocoa producers scrambling to keep up.  As you may know, Ivory Coast and Ghana are the world’s top cocoa producing countries.  Nearly 70% of global supply comes from this West African region.

But all is not well in this area…

Years of political unrest have prevented investment in Ivory Coast’s and Ghana’s cocoa industry.  As a result, growers are faced with constant hardship getting their crops to market.  What’s more, a recent dose of unusual weather has growers struggling to keep cocoa trees healthy.

And that’s why the global cocoa market is entering a supply deficit…

The ICCO recently announced the global cocoa market ended up in a much larger deficit than previously thought for the 2012-2013 growing season.  What’s more, the outlook for the 2013-2014 growing season is growing more uncertain due to extended periods of dry West African weather.

As a result, many analysts are now expecting cocoa prices to surpass $3,000 a tonne in 2014.  That’s a substantial jump from the current price of $2,800.

How can you capitalize on higher cocoa prices?

One alternative is the iPath Pure Beta Cocoa ETN (CHOC).  When the price of cocoa rises, so does CHOC.  As long-time readers know, we focus on commodity ETFs as opposed to futures contracts here at Commodity Trading Research.

Until Next Time,

Justin Bennett

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Category: Cocoa

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.