Updated on March 30, 2023
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 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.
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.
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.
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 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
|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
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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