The Learn About Futures Insider for July 21, 2011: Cocoa

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From a luxury item to a staple part of modern life, cocoa remains a decadent product whose origins are exotic – even mysterious – for most end-users. Cocoa beans come from pods from trees (cocoa or cacao) which were originally grown in South America and were eventually cultivated on the African continent at the dawn of the nineteenth century. Grown in only a handful of countries across the globe, cocoa has an interesting and dynamic set of fundamentals which affect price. Although cocoa is traded on two exchanges globally – London and New York –contract details will focus on the New York, or Intercontinental Exchange, information.

Contract Size:10 metric tons

Price Quote & Tick Size: Dollars per metric ton; minimum price fluctuation is $1.00 per metric ton or $10.00 per contract

Contract Months: March, May, July, September, December

Trading Specs: Futures trade electronically only on the Intercontinental Exchange 0400 to 1400 ET.
Options floor trading hours are 0800 to 1300 ET.

Daily Price Limit: None

Trading Symbols: CC futures, CO options


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Cocoa Facts


A huge percentage of global cocoa production resides within the African continent with the crown for production numbers falling to Ivory Coast (Cote D’Ivoire) at almost double its neighbor Ghana’s production. The total production numbers for the bean have grown through the last decade not due to increasing yields but rather increased production area.

Key producers are illustrated in the following table:


Trees begin to bear fruit when they are four or five years old and produce an average of twenty pods a year which spring from flowers pollinated by tiny flies, or midges. Once a pod ripens, it can contain anywhere from 20 to 60 beans embedded in pulp within an orange-colored rind. Pods are opened and the pulp and seeds are allowed to ferment or “sweat”, a process by which the pulp liquefies leaving the beans to be collected and then dried.

Pods can mature on the trees throughout the growing season from October to September but there is a general consensus that among producing nations there is a main crop and a mid-crop. However, since cocoa is a tropical crop, changes in the weather and the near year-round rainfall for some growers means that main and mid-crop harvest times can fluctuate.

Key supply and demand data is included in the following chart:


Source: ICCO Quarterly Bulletin of Cocoa Statistics, Vol. XXXVII, No. 2, Cocoa year 2010/11
Published: 02-06-2011

Price highlights for this market include:

* In the early 1970s, cocoa prices were close to $500 per metric ton. Within that decade, prices would soar as consumption outpaced production.
* In 1974, African producers faced threat of severe drought on cocoa plantations which caused prices on markets to jump, especially in London.
* Frost in Brazil in July of 1975 damaged cocoa trees and sparked additional price rallies.
* Civil war in Ivory Coast (Cote d'Ivoire) in 2002 also cause a price spike to more than $2,400 per ton.
* After the tempestuous 2010 presidential election and challenge in ousting the incumbent president, civil strife and an export ban pushed prices up to $3,826 per ton.

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