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Commodity Trading: Cocoa Futures

Demand / Consumption Considerations

The main demand for Cocoa Beans is from processors who either ferment or grind the bean to be used in a variety of products ranging from chocolate to cosmetics.

The cocoa butter extracted from the beans is used in a number of products, ranging from cosmetics to pharmaceuticals, but its main use is in the manufacture of chocolate candy. Once the Cocoa bean is fermented and dried, the waste water and shells are removed and the remaining "nib" is roasted. The roasted nib can then be ground into liquor for chocolate or for processing. Liquor for chocolate can be combined with sugar and milk (optional) and then blended and refined, producing a liquid chocolate (couverture) which can molded or stored as a liquid. Liquor for processing can be refined into either Cocoa cake or Cocoa butter, which are used by confectioners and other industries.

The major consumers and processors of Cocoa are as follows, with their 1997/98 grindings in thousand metric tonnes: Netherlands (410), United States (410), Germany (250), Cote d'Ivoire (200), Brazil (180), United Kingdom (175), and France (105). Most consumption of Cocoa and Cocoa by-products is done in Europe and the United States. The estimates for 1995/96 Cocoa year show that world Cocoa consumption was around 0.68 kilo per head (or 1.02 kilo per head, excluding China whose large population has a disproportionate affect on world per capita consumption). There are, however, wide variations in consumption levels between the regions. Countries in Western Europe consume on average around 2.42 kilos per head, Eastern Europe 0.85 kilos, the Americas 1.33 kilos, Asia 0.15 kilos (0.68 kilos, excluding China) and Africa 0.13 kilos.

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SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.