What is Cocoa?
The royal court of the Mayan empire, used to drink Cocoa as a bitter beverage. Now cocoa is consumed in one form or another by every country in the world. Cocoa as a commodity has become an international industry. Today, cocoa trees are predominantly grown in West Africa, primarily processed in the Netherlands and the U.S.A.
Uses of Cocoa
There are many different uses for cocoa some of these can include using the husks of cocoa pods which surround the cocoa bean in:
- Animal feed
- Production of soft drinks and alcohol
- Potash used as a fertiliser for crops
- Jams and marmalade
The Cocoa bean can be fermented and dried and used in a number of products which include:
- Cocoa Butter
- Cocoa Powder
- Cocoa Liquor
Risks of Cocoa
Like any futures contract, there is always the possibility that the underlying asset i.e. cocoa will move in the opposite direction to which you hold your contract. For example: you have taken a long position (expecting the price of cocoa to rise), if this were to happen and the cocoa fell in price, your long position in cocoa will decrease in value.
Cultivation risks associated with growing cocoa such as low rain falls, insects, disease, temperature, wind and solar radiation. All these factors can affect the level of output a farm is able to produce hence affecting the price of the cocoa.