Reports CTRM for Agricultural and Soft Commodities | Page 30
CTRM for Ags & Softs
dollar price of cocoa has been quiet stable since the 1950s. Traders usually do not trade this long-term constant dollar
price, but rather focus around the short-term current dollar price. Cocoa prices therefore do not have the volatility levels of
other soft commodities, but they do provide traders with significant trend-following opportunities.
Cocoa has a unique relationship to currencies as a result o f Britain’s historical domination of the West African cocoa
industry, and a British pound-denominated futures contract traded on the New York Stock Exchange-London International
Financial Futures (LIFFE) exchange, cocoa’s currency correlation has been stronger with the British pound (GBP) than
with the ICE U.S. Dollar Index®. The GBP leads the price of cocoa by thirty-nine weeks, or three calendar quarters, on
average and presents an active arbitrage between cocoa contracts trading in New York and London. While the long-term
relationship is shown, experienced traders see the effect intraday when the British pound has a large movement during
the period when New York and London trading overlaps.
Cocoa origination and trading are complex due to the specifics around each source area and due to the physical
characteristics of cocoa. Cocoa may be traded on multiple exchanges in multiple currencies, and attributes including bean
size, infestation, certification,etc. are important quality factors that impact demand and price. The chocolate industry also
consumes semi-finished products such as cocoa powder, cocoa butter, and cocoa liqueurs, and these products are
normally traded, priced and/or hedged based on underlying relationshipwith cocoa.
Types of Entities Involved in Cocoa Trading
Producers
Agents
Brokers
Banks
Insurers
Traders and Merchants
Inspectors
Exporters/Importers
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Roasters
End users –
Confectioners, Bakers,
etc.
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