November 3

Cocoa Trading – 33 Things I Wish I Knew Before I Started

Last Updated on 3 November, 2022 by Samuelsson

Here is some information about Cocoa trading. Such things I wish someone told me before I started trading Cocoa futures.

1. What is cocoa trading?

Cocoa trading is the buying and selling of cocoa contracts or instruments in order to make a profit.

Cocoa futures market trade on New York Mercantile Exchange (NYMEX) and also the Intercontinental Exchange (ICE) in London. and are the perfect choice for traders and hedgers who wish to get easy and cheap exposure to the cocoa market. Cocoa futures have a tick size of $10, and expire in the months of March, May, July, September, and December. The size of each cocoa contract on the NYMEX is 10 metric tons.

2. What are cocoa futures?

The term cocoa futures refers to futures contracts that allow traders to buy or sell a contract today to be settled at a future date. Cocoa futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of cocoa (10 metric tons) at a predetermined price on a future delivery date.

A futures contract is a commitment to make or to take delivery of a specific quantity and quality of cocoa beans at a predetermined place and time in the future. All cocoa contract terms are standardized and set in advance. As a result, cocoa futures contracts are interchangeable, except for delivery time.

3. How is cocoa traded?

The contract is traded on New York Mercantile Exchange (NYMEX) and also the Intercontinental Exchange (ICE) in London and expires in the months of March, May, July, September, and December. One cocoa futures contract is equivalent to 10 metric tons of cocoa, and the tick size is $10.

4. How do you start trading cocoa futures?

To start trading cocoa futures, all you need to do is to create an account with the exchange through your futures broker and deposit the required margin. Since it is a leveraged instrument, you need not have the full dollar worth of the contract before you can trade it. However, you have to be cautious about leveraged instruments — while you can make more money with them, you can also lose more.

5. What is cocoa trading at?

Prices of cocoa can be found here.

6. What is the current price of cocoa and cocoa futures?

You can also find the current cocoa prices here.

7. When does the Cocoa contract expire?

Cocoa futures trade for delivery or expiration during the months of March, May, July, September and December.

One business day before the last notice day.

8. Whats cocoa futures trading hour?

Trading Hours (New York)
4:45 AM – 1:30 PM 04:45 – 13:30 // Pre open 8:00 PM 20:00
Trading Hours (London)
9:45 AM – 6:30 PM 09:45 – 18:30 // Pre open 1:00 AM 01:00
Trading Hours (Singapore)
5:45 PM – 2:30 AM 17:45 – 02:30 // 9:00 AM 09:00

 

9. Where can I find trading charts?

Here you can find cocoa trading charts.

10. Cocoa Trading Strategies

Finding trading strategies in the cocoa futures market could be a challenging task, but it’s not an impossible feat. For example, the above graph shows a cocoa futures trading strategy that we trade at the moment.

If you want to get inspiration to build your own trading strategies on a range of futures markets, we recommend that you have a look at our edge membership!

Cocoa Trading strategy: Patterns in Cocao Futures Trading Strategy

11. What are the trading symbols for cocoa?

CME Globex: CC-F
CME ClearPort: CC
Clearing: CC

 

12. What is the specification for the cocoa futures contract?

specification for the cocoa futures contract

13. Why Should You Trade Cocoa Futures Contracts

There are many reasons to trade cocoa futures contracts. But the main factors that bring investors and traders to the cocoa market are the following:

Inflation hedge: Just like most other agricultural commodities, you can trade cocoa futures to hedge against inflation because it has an intrinsic value, which increases when inflation is on the rise. Moreover, with the central banks manipulating interest rates to boot their economies, paper currency is constantly losing value.

Diversifying portfolio: Astute investors diversify their investment portfolios. They have as many asset classes in their portfolio as they can lay their hands on. Diversifying into other asset classes helps to protect your investment from the effects of systemic events like market crashes. Cocoa futures provide a nice opportunity for portfolio diversification.

Speculating on cocoa price fluctuations: The bulk of the world’s cocoa supply comes from four West African countries, and those countries are prone to political crises, which often affect global supply. Apart from politics, changes in weather conditions in those countries can affect production. As a result, cocoa prices can fluctuate widely, creating opportunities for speculation, which can be very profitable if you master the art.

14. What is cocoa used for?

Although the cocoa futures contract is the smallest in the soft commodity market, cocoa is used in a lot of things. These are the main uses of cocoa:

Cocoa powder: This is the nonfat solid remnant of the cocoa beans after the cocoa butter has been extracted. It is used in making cocoa-flavored drinks, candies, and desserts.

Cocoa butter: This is the fatty substance extracted from cocoa beans. It is mainly used in the chocolate industry but can also be used to make cosmetic products, such as soaps, makeup, and moisturizing cream.

Cocoa liquor: It is a semi-liquid extract from fresh cocoa beans that have not been dried or fermented. Consisting of roughly equal proportions of cocoa butter and cocoa solids, it is the chief ingredient in chocolate and confectionery products.

Cocoa husks: The husks of cocoa pods are used in making animal feed, fertilizer, and mulch.

The cocoa seed is a very important agricultural commodity used in making chocolates, ice creams, drinks, cakes, and toppings. It is also used in the production of certain alcoholic drinks, such as brandy. The potash from cocoa pod husk is used in soap production.

Growing at a CAGR of 3.4%, the value of the global market for cocoa is expected to hit over $14.5 billion in the next five years.

15. What is cocoa?

Cocoa is a highly concentrated powder made from chocolate liquor—a paste prepared from cocoa beans, the fruit of the cacao—and used in beverages and as a flavoring ingredient. Cocoa is the key ingredient in chocolate and chocolate confections.

Forms of the cocoa bean during production The cocoa bean or simply cocoa also called the cacao bean or cacao, is the dried and fully fermented seed of Theobroma cacao, from which cocoa solids and cocoa butter can be extracted. 

The cocoa bean is the seed of the cacao tree (Theobroma cacao), a tropical plant indigenous to the equatorial regions of the Americas. From the processed cocoa bean comes the fluid paste, or liquor, from which cocoa powder and chocolate are made.

16. How do you invest in cocoa?

You can invest in cocoa via futures contracts, options, CFDs or ETF.

How do you invest in cocoa?

17. Are there an ETF for investing in cocoa?

There is an ETF that offers pure-play exposure to cocoa prices.

NIB – NIB iPath Bloomberg Cocoa Subindex Total Return ETN

NIB tracks an index of cocoa futures contracts. It reflects the performance of cocoa futures contracts with three different expiration dates.

18. Where can I find news about cocoa futures?

Here is a good source for cocoa news.

19. What factors affect cocoa prices?

There are so many factors that can affect the prices of cocoa and make it go up and down, such as the following:

Weather conditions: Four West African countries account for about two-thirds of the global cocoa production. Since cocoa pods require the right mix of rainfall and sunshine to ripen, any adverse weather conditions in those countries can affect global cocoa production. Moreover, the region lacks adequate transportation infrastructure — excessive rain can cause a delay in transporting the commodity from production sites.

Local politics: Political crisis in those countries, especially Ivory Coast, which is, by far, the largest producer, can affect global supply and cause cocoa prices to rise.

Changes in consumer preferences: The demand for dark chocolate, which requires more cocoa to produce than milk chocolate, can affect the demand for cocoa — which in turn influences cocoa prices. Presently, more people are consuming dark chocolate because of the reported health benefits, but that can change in the future.

Key reports: Some cocoa market reports can significantly move the prices of cocoa futures contracts, and these are some of them:

  • Global Cocoa Market Report
  • ICCO Monthly Review
  • ICCO Annual Reports

20. Are cocoa a commodity?

Yes, cocoa is a commodity.

Cocoa Trading – 33 Things I Wish I Knew Before I Started

21. What is the all-time high of cocoa?

The alltime high in the cocoa futures market is 5379 which happened in July of 1977.

22. Who are the Largest Producers and Consumers of Cocoa

The cocoa plant grows in tropical regions, such as the West African rainforests and the Amazon regions. Ivory Coast, Ghana, Nigeria, and Cameroun are four top producers from West Africa, and they account for about two-thirds of the world’s cocoa production. Other top producers are Indonesia, Brazil, Ecuador, Mexico, Peru, and the Dominican Republic.

Chocolates and other cocoa-derived products are widely consumed in different parts of the world, especially in North America and Western Europe. The top importers of cocoa beans include the US, Germany, Netherlands, France, Belgium, the UK, Canada, Italy, Spain, and Poland. The commodity is mostly traded via futures contracts.

23. How do you trade cocoa futures?

If you want to play the cocoa market, it is best to trade cocoa futures contracts. The contract is offered on the London International Financial Futures and Options Exchange, which is a part of the Intercontinental Exchange (ICE). It also trades on the New York Mercantile Exchange (NYMEX) — a member of the Chicago Mercantile Exchange (CME) Group.

Through the CME Globex electronic platform, cocoa contracts can be traded from any part of the world. A cocoa futures contract is equivalent to 10 metric tons of cocoa, and it normally expires in the months of March, May, July, September, and December. On the ICE, settlement of the contracts, at expiration, is by physical delivery of the commodity, while on the CME, the contract is settled with cash at expiration.

There are other ways you play the cocoa market, apart from trading the futures contracts, and they include cocoa options, cocoa ETFs, and cocoa CFDs. 

24. Cocoa Futures Seasonality

Here is a graph over the seasonal effects on the cocoa futures market:

Cocoa Futures Seasonality

 

Over 75% of the world’s production of cocoa comes from the primary crop grown in Ghana and Ivory Coast, which has two main crop seasons. The growing season for this crop lasts from January to March. The remaining amount is derived from Brazil’s crop seasons and Indonesia. The general consensus is that cocoa prices trend

to peak in June as a new crop harvest begins, to bottom in June, and to When supplies start to fall in March and consumers have already stockpiled the goods in advance of the Easter season. The Frost is one of the primary variables impacting cocoa crops, and the Ivory Coast and Ghana both grow cocoa, the

Additionally, regional political unrest raises the cost. volatility. January is the seasonal low for Brazilian crop production.

25. What are cocoa classed as?

Cacao (or cocoa) beans are technically not beans or legumes, but rather the seeds of the fruit of the Theobroma cacao tree. 

26. How do I buy stock in cocoa? 

You cannot buy cocoa stock. However, you can buy an ETF that is following the prices of Cocoa. ETFs are traded on the stock markets. An ETF for the Cocoa market is NIP.

27. Is it risky to trade cocoa?

Yes, trading cocoa can be risky. A strong US dollar could make cocoa prices go lower. Overproduction by large suppliers could also make it go lower.

28. What is the contract size for cocoa futures?

It is currently: 10 metric tons

29. What is the tick size of cocoa futures?

Tick size is $10 for cocoa futures. Point value is $10.

30. What is the minimum price fluctuation?

The minimum price fluctuation is $10 per contract.

31. What is the Daily Limit on Cocoa Futures?

There is no daily limit on Cocoa futures.

32. History of the cocoa market

But it was after the 15th century, when Spain introduced the plant in Europe, that cocoa consumption became popular. Today, various cocoa-derived products are enjoyed in different parts of the world, and more than 4 million tons of cocoa are consumed globally every year, making it a very important commodity. The world benchmark for the global cocoa market is the cocoa futures contract.

33. Reports about Cocoa to watch and that can affect prices.

Global Cocoa Market Report, ICCO Monthly Review, and ICCO Annual Reports.

Final thoughts

Cocoa, also known as cocoa bean or cacao bean, is the dried and fermented seeds of the Theobroma cacao plant, from which cocoa butter and the nonfat cocoa powder are extracted. The plant was first domesticated about 5,300 years ago by the Mayo-Chinchipe people, who use the beverages for spiritual ceremonies.

Cocoa is used in making cocoa liquor, cocoa butter, and cocoa powder, which are used in the production of chocolate and chocolate-flavored products. The best way to play the cocoa market is by trading cocoa futures contracts on the ICE or CME.

Here is our archive with articles about other tradeable futures markets.


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