Commodities: Cocoa

Cocoa is a member of the “softs” commodity group: those that are grown, rather than mined. As a commodity, cocoa refers to cocoa beans, which are the dried seeds of the Theobroma tree – from the Greek theos, meaning “god” and broma, meaning “food.” Once used as a common currency, cocoa today is used primarily in the production of chocolate and other products, such as cocoa butter.

Contract Specifications

Production        

The cocoa tree needs a specific climate to thrive: It’s a shade-loving tree native to the rainforest understory that grows best in regions that are 20 degrees north or south of the Equator. Cocoa trees take about five years to reach maturity and bear fruit, at which time about 20 pods might be ready for harvest (in general, 10 pods produce 2.2 pounds of cocoa). Worldwide, the top three producers are Cote d’Ivoire, Ghana and Indonesia. While West Africa accounts for about 70% of global market share, Latin America is a key player, thanks to Brazil, Ecuador, Mexico, Peru, Dominican Republic, Columbia, Venezuela and Guatemala.

Price Drivers

The price of cocoa is influenced by several factors, any of which can trigger significant price swings in a relatively short time period. Key price drivers include:

• weather conditions
• geopolitical tensions
• climate shifts (which can affect conditions for healthy growth)
• labor (cocoa relies heavily on cheap labor and new labor regulations can impact price)