Description

Cocoa is the common name for a powder derived from the fruit seeds of the cacao tree. The Spanish called cocoa "the food of the gods" when they found it in South America 500 years ago. Today, it remains a valued commodity. Dating back to the time of the Aztecs, cocoa was mainly used as a beverage. The processing of the cacao seeds, also known as cocoa beans, begins when the harvested fruit is fermented or cured into a pulpy state for three to nine days. The cocoa beans are then dried in the sun and cleaned in special machines before they are roasted to bring out the chocolate flavor. After roasting, they are put into a crushing machine and ground into cocoa powder. Cocoa has a high food value because it contains as much as 20 percent protein, 40 percent carbohydrate, and 40 percent fat. It is also mildly stimulating because of the presence of theobromine, an alkaloid that is closely related to caffeine. Roughly two-thirds of cocoa bean production is used to make chocolate and one-third to make cocoa powder.

Four major West African cocoa producers, the Ivory Coast, Ghana, Nigeria, and Cameroon, together account for about two-thirds of world cocoa production. Outside of West Africa, the major producers of cocoa are Indonesia, Brazil, Malaysia, Ecuador, and the Dominican Republic. Cocoa producers like Ghana and Indonesia have been making efforts to increase cocoa production while producers like Malaysia have been switching to other crops. Ghana has had an ongoing problem with black pod disease and the crop's smuggling into the neighboring Ivory Coast. Brazil was once one of the largest cocoa producers but has had problems with witches' broom disease. In West Africa, the main crop harvest starts in the September-October period and can be extended into the January-March period. Cocoa trees reach maturity in 5-6 years but can live to be 50 years old or more. The cocoa tree will produce thousands of flowers during a growing season, but only a few will develop into cocoa pods.

Cocoa futures and options are traded at the ICE Futures U.S. and ICE Futures Europe exchanges. The futures contracts call for the delivery of 10 metric tons of cocoa and the contract is priced in US dollars per metric ton.

Prices - ICE cocoa futures prices (Barchart.com symbol CC) moved sideways to higher in Q1 of 2021 due to demand optimism as the pace of global Covid vaccinations picked up and allowed economies to reopen. The upside in cocoa prices in Q1 was limited as favorable weather in West Africa boosted the outlook for cocoa crops in the Ivory Coast and Ghana, which account for 70% of the world's cocoa. Also, the International Cocoa Organization (ICCO) in Feb projected a 2020/21 global cocoa surplus of +102,000 metric tons, much larger than the +10,000 metric ton surplus in 2019/20. Cocoa prices sank to a 4-year low in mid-March of $1,900 per metric ton on the prospects for bumper cocoa crops in West Africa. ICCO in May projected a record 2020/21 global cocoa crop of 5.02 million metric tons and raised its 2020/21 cocoa surplus estimate to +165,000 from a Feb estimate of +102,000 metric tons. The 2020/21 cocoa crop in Ghana, the world's second-largest cocoa producer, rose above 1 million metric tons for the first time since 2010/11. Cocoa prices pushed higher into Q4 as global cocoa demand recovered after data showed European Q3 cocoa grindings jumped +8.7% to 375,811 metric tons, the most for any quarter since 2011. Cocoa prices climbed to their high for 2021 of $2,792 per metric ton in October. Prices then fell back into year-end on signs of ample supplies after ICCO raised its global 2020/21 cocoa production estimate to a record 5.14 million metric tons from a previous estimate of 5.02 million metric tons. Cocoa prices finished 2021 down -3.2% yr/yr at $2,520 per metric ton.

Supply - The world's production of cocoa beans in the 2020/21 crop year rose +2.5% to 5.757 million metric tons. The world's largest cocoa producer by far is the Ivory Coast, with 38.2% of the world's production, followed by Ghana with 13.9% and Indonesia with 12.8%. Closing stocks of cocoa in the 2019/20 crop year rose by +2.4% yr/yr to 1.760 million metric tons.

Demand - World seasonal grindings of cocoa in 2019/20 fell -by 3.1% yr/yr to 4.635 million metric tons. The European Union is by far the largest global consumer of cocoa, consuming about 34% of the global crop.

Trade - U.S. imports of cocoa and cocoa products in 2021 rose by +10.1% yr/yr to 1.505 million metric tons, a new record high.

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