Reports CTRM for Agricultural and Soft Commodities

CTRM for Ags & Softs After the beans are properly dried and packed into sacks, they are sold to a buying station or local agent who then transports the bags to an exporting company. The exporting company inspects the cocoa and puts it into burlap, sisal, or plastic bags. The cocoa is trucked to the exporter’s warehouse near a port. Sometimes, additional drying may also be necessary. At some point, the beans are loaded onto ships and transported.At the destination point,the cocoa will be taken to a warehouse to be stored either in bags or in bulk. The buyer will conduct quality checks to accept delivery, and the cocoa is usually stored until requested by the processor or manufacturer. Trucks or trains carry the cocoa in large tote bags or loose in the trailer to the manufacturer’s facility on a “just-in-time” basis. Cocoa samples are an important aspect of the business.As in coffee, and orders may be made on the basis of provided samples. As a result, sample management is also key part of the supply chain. There the beans are again inspected and cleaned before being roasted,eitherwith the shell intact, or the nib (inside) can be roasted alone. After being shelled and roasted, the nib is ground into a paste, and the heat that is generated by this process causes the cocoa butter in the nib to melt creating something known as “cocoa liquor.”Thecocoa liquor can be further refined and then sold as unsweetened baking chocolate or used in chocolate manufacturing. The cocoa processor has the option of treating the cocoa liquor with an alkali solution (alkalizing), which reduces the acidity. This treatment is also known as “dutching” and produces “Dutch processed cocoa,” which is darker and milder but has a more chocolatey flavor and stays in suspension longer in liquids such as milk. The cocoa liquor is fed into hydraulic presses that divide the liquor into cocoa butter and cocoa cakes. The cocoa cake can be sold into the generic cocoa cake market, or they can be ground into a fine powder. To make chocolate,thecocoa liquor is mixed with cocoa butter, sugar and, in some cases, milk. The mixture is then placed into conches—large agitators that stir and smooth the mixture under heat. The longer the chocolate is conched, the smoother it will be, and so conching may last anywhere from a few hours to three full days, or even longer. After conching, the liquid chocolate may be shipped in tanks or tempered and poured into molds for sale in blocks to confectioners, dairies, or bakers. Cocoa Trading The futures contract for cocoa is traded on the Intercontinental Exchange (ICE) and NYSE Euronext. Cocoa futures were first traded in New York in 1925, and both futures and options on futures are available derivatives. The price of cocoa is influenced by the following factors:      Climate - While bees and butterflies are common pollinators, the cocoa flower is pollinated by midges, small flies or by hand. Global climatic shifts are presumed to have an effect on bee colonies around the world, and the midge fly could be affected by similar environmental pressures, Temperatures for optimum growth range from just 69-90 degrees Fahrenheit, or 21-32 degrees Celsius. Temperatures lower than 59 degrees (15 degrees Celsius) can be fatal. Cocoa trees need no more than 2,000 millimeters of annual rainfall. Political Instability – Between 1983/4 and 2003/4, cocoa production doubled.This increasedid not occur because of advances in agricultural efficiency, but because more land was allocated to cocoa. As much cocoa production occurs in politically unstable areas such as the Ivory Coast, Ghana and Indonesia, political factors can have a heavy influence in cocoa price stability. Monopoly - Just a few companies control much of the world's chocolate. Other Political Issues - In 2005, a report was issued that said that cocoa farms on the Ivory Coast were exploiting thousands of children. Sourcing cocoa acceptably is of interest to consumers and fair trade certification is important. The International Cocoa Organization (ICCO) founded in 1973 works to promote a sustainable world cocoa economy. ICCO member countries represent approximately 85% of world cocoa production and about 60% of world cocoa consumption. Except for during periods of supply disruption in the late 1970s and 2009-2011, the long-term constant © Commodity Technology Advisory LLC, 2016, All Right Reserved 28

Reports CTRM for Agricultural and Soft Commodities | Page 29