Hot Commodities: More Upside For Cocoa?

| April 24, 2013 | 0 Comments

cocoaOne thing’s for certain…

The past two weeks have been rather treacherous for anyone bullish of commodities.  Precious metals were wiped out, crude took a dive, and industrial metals set new 52-week lows.

At first glance, it looks like bears are completely overtaking the commodity markets.

But do a little research and you’ll find that’s far from the truth…

Upon further review, you’ll find there are remarkable pockets of strength in certain commodities.  For example, natural gas has completely bucked the bearish commodity turn in recent trading.  In fact, natural gas set a new multi-year high at $4.40 mmBtu last Thursday. 

And natural gas isn’t the only commodity where bulls are in control…

Cocoa is making a solid run to higher prices as well.  In fact, the African commodity jumped from $2,050 a ton in early March, up to $2,350 a ton a few days ago.  That’s a solid 14% gain when most other commodities are falling through the floor.

Take a look…

Cocoa

As you can see, the iPath Pure Beta Cocoa ETN (CHOC) is advancing nicely in recent trading.  If you’re unaware, CHOC is a commodity ETN that tracks the day-to-day price movements of cocoa futures.  The recent high near $35 (blue circle) correlates with the $2,350 price level in the cocoa spot market.

So, why exactly are cocoa prices gaining steam?

Let me explain…

As I said a minute ago, cocoa is an African commodity.  I say that because the West African nations of Ivory Coast, Ghana, Nigeria, and Cameroon supply nearly 75% of the world’s cocoa.

While Africa’s 2012 cocoa crop ended up being stronger than expected, this year’s crop will most likely fall short.  In fact, recent estimates from the International Cocoa Organization (ICCO) suggest the global cocoa market will be in deficit by 45,000 tonnes.

What’s that mean?

The global cocoa market will by undersupplied in the near future.  And as long as cocoa grindings stay elevated, there’s a very good chance the commodity tests the $2,500 level by the end of this year.  That would push CHOC up to around the $37 area (red circle).

Now, before you rush out and buy CHOC, I have to tell you something…

I recommended CHOC to subscribers of my Commodity ETF Alert earlier this year.  Many subscribers are long CHOC at a price of $32.50 or lower.

Instead of buying CHOC, you’d be better served by discovering what the Commodity ETF Alert has to offer.  Each month I recommend a commodity ETF that has high odds of moving dramatically higher in coming months.

My next trade comes out on May 14th, so be sure to check it out as soon as you can!

Until Next Time,

Justin Bennett

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Category: Cocoa, Softs

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.

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