#216: Cocoa x Politics, Climate, and Supply Dynamics
Cocoa Futures Contracts are at an all-time high, up 118%+ the past three years
Let’s take a look at:
The CC futures contract
The macro factors
$FARM: Farmer Bros Co
CC at all-time high
Listed on the ICE (Intercontinental Exchange), the CC is a Cocoa futures contract that prices the physical delivery of "exchange-grade product from a variety of African, Asian and Central and South American origins to any of five US delivery ports"
1 contract accounts for 10 metric tons of cocoa, and price is quoted at dollars per metric tons
i.e. a purchase of 1 CC MAR24 contract would mean the buyer commits to paying a total of $5,704 (as of writing) to acquire 10 metric tons of cocoa, with the transaction specified for March 2024 delivery
👉 Cocoa futures contract play a pivotal role in the commodities market, accurately reflecting the current state of cocoa demand, supply dynamics, and market sentiment — these contracts are actively traded by producers, exporters, trade houses, processors, chocolate manufacturers, and even institutional / short-term investors.
Why the rally in cocoa price?
1. Bad Weather
Hammer crop yields in West Africa (i.e. Ghana, Ivory Coast) are home to ~75% of the world's cocoa production — hotter temperatures and shifts in rainfall patterns due to the El Nino (expected to last through March 2024) is leading to damage in cocoa pod development and is promoting the spread of pests.
Humza Hussain, a commodities analyst at TD Asset Management, told CNBC: “The changing weather patterns means that the potential yields of cocoa are now permanently impaired”
2. The Red Sea Conflict
Per the International Cocoa Organization (ICCO)'s December 2023 report: With the recent surge in freight rates due to tensions in the Red Sea can result in "additional cost" from high freight rates
3. Shortage in Supply
October-to-March harvest period is close to an end in the Ivory Coast - only 34k tons is estimated to arrive at main ports for the week of Feb. 12, as opposed to 66k tons the same period last season
Cocoa exporters in Ivory Coast are in desperate need of up to 150k tons of beans to honor their contract commitments
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