Is 2023 going to be sweet or bitter?

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How many times have you read about trading cocoa? The answer is probably not too many. Agricultural commodities are a large part of global trade activity. Cocoa is an important commodity traded worldwide because it is one of the basic ingredients of our daily diet.

Many factors affect the supply and demand of cocoa. In this blog, we will share the necessary information that beginner traders should have at their disposal about trading cocoa.

Learn the basics of cocoa

Archaeological research has shown that the cacao tree was first domesticated in equatorial South America. Archaeologists suggest that the Olmecs in Central America consumed cocoa beans between 1500 and 1400 BC Cocoa beans were used as currency in trade activities between tribes in Central and South America before the Spanish conquistadors reached land.

Spanish invaders were enamored with cocoa beans and brought them back to Europe, where the drink became very popular during the 17th century. The Spanish began to establish cacao plantations during their conquest of the native tribes to supply Europe with cacao and launch a very profitable business venture.

Cote d’Ivoire (Ivory Coast), Ghana, and Indonesia are the countries that produce the most cocoa beans in the world. Generally speaking, cocoa beans come from fairly humid regions and are very close to the equator. The United States, the Netherlands, and the United Kingdom are the most important producers of cocoa-based goods.

Trading cocoa: Price fluctuations

As you can see in the graph below, 2018 was a turbulent year for cocoa trading. On April 1, 2018, US Cocoa traded at $2,821 per metric ton, falling to $2,009 per metric ton on September 1, 2018. Since then, there have been many fluctuations depending on supply and demand.

Featured: Admirals MetaTrader 5 – US Cocoa (1 metric ton), USD Monthly Chart captured March 9 2023. Date: 1st March 2018 – Marat 9 a.m 2023. Past Performance is not an indicator of future results.

October 26thth 2022, United States Cocoa traded at $2,252 per tonne. The agricultural commodity seems to be gaining ground in recent monthsrecording a multi-month high in mid-February 2023.

Featured: Admirals MetaTrader 5 – US Cocoa (1 metric ton), USD Daily Chart captured on March 9 2023. Date range: 7 October 2022 – 9 March 2023. Past Performance is not an indicator of future results.

The price of cocoa depends on many factors. Some of them are weather conditions and climate, geopolitical uncertainty, crop diseases and labor problems.

Cocoa production hurt by weather conditions?

Data released by GEPEX, a group including 6 of the world’s largest cocoa mills, announced that Ivory Coast’s cocoa milling grew 16% year-on-year in February 2023 to 58,452 tons.

Total milling from the start of the 2022/23 season in October stood at 292,195 tonnes of beans by the end of February, up almost 12% year-on-year.

A report from Investing.com, published on February 15, said that the North American cocoa grind, a measure of demand, fell 8.13%, on an annual basis, in Q4 2022. Based on this data, market analysts suggest that cocoa prices could remain raised for the next 3- to -4 months. However, beginning traders should keep in mind that the cocoa market is volatile, as various external factors, such as weather conditions, could affect supply and demand.

Ivory Coast restricts purchases of cocoa beans

A Reuters report published on February 23 revealed that Ivory Coast’s cocoa regulator restricted 20 major traders, including Cargill and Barry Callebaut, from buying beans for export after they reached their purchase limits.

Cargill Inc and Barry Callebaut are the country’s largest cocoa millers and the largest buyers of cocoa beans produced in Ivory Coast. The two companies announced that they had entered into negotiations with the Coffee and Cocoa Council (CCC).

Reuters sources suggested the measure may not yet be enough, as below-average rainfall and poor weather conditions in recent months have hurt production. However, weather conditions appear to be improving in February, as a report from Côte d’Ivoire said that “unseasonably heavy rainfall in most of Côte d’Ivoire’s cocoa-growing regions last week will help improve the size and quality of the crop from mid-April to September.”

Empower your business with education

Although commodities such as metals, energies and others can sometimes be less volatile trading instruments compared, for example, to currency pairs, you should not forget that trading involves risk. Beginner traders can enjoy the excitement of trading because volatility could increase adrenaline. Very often, novice traders tend to engage in trading and lose hard-earned funds due to insufficient preparation. Achieving your financial goals shouldn’t be tied to excessive trading, especially if you’re just starting out.

How can beginning traders improve their performance? The answer is education. Experienced traders and business analysts stress the importance of studying how trading works. There are various trading techniques that beginning traders should know about. More importantly, there are risk management tools that could reduce the chance of trading error and help you achieve your trading goals.

There are many resources you could use to update your business knowledge. Brokers offer access to webinars, seminars, e-books, tutorials prepared by experts and sometimes at no extra cost. Dedicating some time to improve their trading knowledge would be a great way forward for beginning traders.

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This material does not contain and should not be considered as containing investment advice, investment recommendations, an offer or solicitation for any transactions in financial instruments. Please note that such business analysis is not a reliable indicator of any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks involved.

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