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The Approach To The Cocoa Market Has Changed



  • The bearish plunge took cocoa to the lowest price in a decade.
  • Every rally was a sale.
  • Supplies have been abundant, but demand is strong too.
  • A correction since August 2017.
  • Every dip could now be a buy.

Cocoa beans are the primary ingredient in chocolate confectionery products enjoyed by people all over the world. On the demand side of the equation for cocoa, the growth of the market China and the rest of Asia over recent years had supported the price. The price of the commodity that trades on the Intercontinental Exchange reached a low of $1898 per ton in 2011. While many other raw material prices declined from 2012 through late 2015 and early 2016, the price of cocoa went the other way and reached a high of $3422 per ton in December 2015.

As many people in China began to enjoy the pleasures of a chocolate treat, the rally during a challenging time for the commodities asset class was demand-based. Meanwhile, on the supply side of the market, over 60% of annual supplies each year come from the West African countries of the Ivory Coast and Ghana. Cocoa beans tend to thrive in equatorial climates and in these two nations; it is the cocoa business that employs a large percentage of the workforce.

Like all agricultural commodities, the weather and crop diseases each year determine the total crop. However, the politics and economies of West Africa present unique issues at times when it comes to political stability. It is one thing to grow and produce a crop, but often another to transport cocoa beans to ports for export around the world. During periods of political instability such as military uprisings, coups, and other events, even a bountiful crop can rot in the hot African sun.

Corruption in these nations can also cause problems for the cocoa business at times as it is often rampant in West Africa. Over recent years, lots of investment from around the world has improved technology when it comes to cocoa production, but as

This article was written by

Andrew Hecht profile picture
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

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