Cocoa: Supply and Demand Drivers

Introduction: Cocoa is known globally as the primary ingredient for chocolate production. The cacao tree produces fruit pods which are harvested and opened to collect the cocoa bean. The beans are then further processed into cocoa powder or cocoa butter, both of which are used in the production of chocolate and other confectionary items. Cocoa occupies a unique place in the agricultural commodity world due to its high value and relatively small production volume.

1) Key Trading Parameters:

Exchange Traded: Intercontinental Exchange (ICE), ICE Futures US

Price Quote: US dollars per metric ton

Futures Contact size: 10 metric tons

Contract Months: March, May, Jul, Sep, Dec

Settlement: Physical Delivery

Exchange Traded: Intercontinental Exchange (ICE), ICE Europe

Price Quote: British pounds per metric ton

Futures Contract size: 10 metric tons

Contract Months: March, May, July, Sep, Dec

Settlement: Physical Delivery

2) Market Drivers:

Global Supply and Demand Dynamics: Cote d’Ivoire and Ghana are the two leading producers of cocoa. The balance of production comes from other African nations, Brazil, Ecuador, and Central America and Indonesia. At roughly 5 million metric tons, cocoa production is small in comparison to other widely traded commodities.

Diverse Trade: Harvesting and primary processing of cacao is typically done at origin while bean processing is concentrated in Europe and the US. Cocoa products are shipped internationally to supply both domestic and global chocolate and confection brand sales.

Labor Practices: Cocoa is dependent on manual labor for harvesting and primary processing with much of the activity occurring on a small scale. Additionally, the major producing regions are areas with limited economic development and opportunity. As such, the industry has been a focus area for humanitarian groups seeking to prevent the use of child labor and improve overall labor conditions. The issue remains an active one for both NGOs and industry participants.

Sustainability Issues: As with other tropical commodities, efforts are being made to implement and document sustainable agronomic practices. The diverse and fragmented supply chain between grower and consumer has to some extent limited the impact and visibility of these efforts, though the percentage of certified sustainable production is increasing.