Investors interested in diversifying their portfolios have often looked to commodities such as cocoa; therefore, this article sheds light on investing in cocoa ETFs. One of the key motivations for investing in commodities is that historical data reveals that commodities have delivered results in opposition to stock and bond markets.

Agricultural Commodities such as wheat, corn, cotton, and cocoa offer attractive investment options for those interested in reaping the benefit of the ever-increasing demand for food primarily driven by the increasing global population. Investors can grab a piece of the action by putting their money in futures contracts, shares of commodity-producing companies, physical ownership of the commodity or mutual funds, exchange-traded funds (ETFs), and exchange-traded notes (ETNs).

Cocoa

Cocoa has had historical significance for over 5000 years since the Mayans first cultivated it and was colloquially called the ‘food of the gods.’ From chocolate down to cocoa butter, the numerous products made out of cocoa have sustained demand and led to its steady growth globally.

Analysts expect the global cocoa market to grow at a CAGR of roughly 3.4% between 2020 and 2026, with a market growth from $11 billion in 2019 to $13.52 billion by 2025. In particular, the chocolate market is expected to rake in $182 billion by 2025.

Primary factors affecting the price of cocoa

In order to investors to reap the benefits of investing in cocoa ETFs, they should first understand that, like other commodities, cocoa ETFs are affected by the actual price of cocoa, which is in turn influenced by several factors, as seen below;

Geographic location of the plantations

Roughly 60% of cocoa is produced in West African countries, which have been known to be politically unstable at times. Countries like Ivory Coast are significant cocoa producers and yet have had numerous political issues since receiving independence. Investors in cocoa ETFs should keep abreast of the political environment within these countries.

Climate

Cocoa is a delicate plant that requires a lot of attention and care. The plant needs specific climate conditions for it to grow ideally. Extreme conditions such as drought or heavy rain can ruin the crop altogether. This makes changes in weather patterns within cocoa-producing regions especially catastrophic for this much-loved crop.

Complex production cycle

Cocoa takes five years to mature and is highly perishable, which creates abrupt spikes and dips in the price. Conversely, there’re also periods of oversupply, which depress market prices.

Transportation

Due to the fact that the crop is primarily grown in developing countries, the poor infrastructure in some of these places makes it difficult to transport the crop easily. This causes artificial shortages and price hikes in the short run.

Consumer preferences

The demand for dark chocolate has dramatically increased, with recent studies indicating that it is a healthy treat. Consumers all over the globe are becoming increasingly health conscious and, in turn, switching to healthier lifestyles which have impacted the global demand for chocolate.

Cocoa ETFs

Cocoa Exchange-traded funds (ETFs) make it possible for investors to put their money in a basket of cocoa investments in the form of shares traded on the stock market. Commodity ETFs, such as those that focus on cocoa, either physically hold the commodity or, more typically, build a portfolio comprised of futures contracts.

On the other hand, commodity index ETFs keep track of the price of a single commodity index, in this case, cocoa, or track a wider index like agricultural commodities.

iPath Bloomberg Cocoa Subindex ETN

Barclays Bank PLC launched the iPath Bloomberg Cocoa Subindex Total Return ETN to track Bloomberg Cocoa Subindex Total Return’s performance. The index is made up of derivatives like cocoa futures contracts.

Table showing historical data

Date	Open	High	Low	Close*	Adj Close**	Volume
Dec 30, 2022	27.88	28.20	27.86	28.08	28.08	5,400
Dec 29, 2022	27.77	28.00	27.73	27.91	27.91	9,200
Dec 28, 2022	28.64	28.98	28.36	28.40	28.40	11,700
Dec 27, 2022	28.75	28.99	28.55	28.63	28.63	20,100
Dec 23, 2022	28.70	28.70	28.52	28.58	28.58	11,000
Dec 22, 2022	27.80	28.48	27.80	28.48	28.48	21,100
Dec 21, 2022	27.14	27.35	27.14	27.33	27.33	5,300
Dec 20, 2022	27.16	27.29	26.81	26.88	26.88	5,500
Dec 19, 2022	27.15	27.15	26.78	26.81	26.81	15,500
Dec 16, 2022	26.74	26.85	26.50	26.55	26.55	12,300
Dec 15, 2022	27.12	27.21	27.08	27.13	27.13	5,200
Dec 14, 2022	27.28	27.36	27.18	27.29	27.29	3,100
Dec 13, 2022	27.45	27.58	27.15	27.21	27.21	6,700
Dec 12, 2022	26.75	27.00	26.61	26.91	26.91	18,600
Dec 09, 2022	27.54	27.66	26.88	26.96	26.96	8,100
Dec 08, 2022	26.94	27.53	26.92	27.46	27.46	23,800
Dec 07, 2022	26.70	26.99	26.63	26.88	26.88	11,600
Dec 06, 2022	26.78	26.78	26.58	26.58	26.58	5,500
Dec 05, 2022	26.94	27.05	26.50	26.57	26.57	10,100
Dec 02, 2022	27.11	27.41	27.11	27.34	27.34	21,200
*Close price adjusted for splits.**Adjusted close price adjusted for splits and dividend and/or capital gain distributions. Currency in USD

Conclusion

Cocoa ETFs are an excellent way for investors to diversify their portfolios, especially since the commodity enjoys increasing demand. However, before investing, one should be aware that cocoa prices are majorly affected globally by events that occur within the west African nations that dominate production. Therefore factors like poor infrastructure and political instability can cause volatility in market prices. Consequently, an investor must conduct in-depth research before placing any bets.

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