Cocoa Market Outlook. Is Cocoa the New Gold?

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In recent months, the price of cocoa has soared to record levels several times, while it has increased by more than 150% since the beginning of the year amid concerns about a reduction in supplies to West Africa.

Today, cocoa prices fluctuate, reaching heights and correcting to lower numbers due to a strengthened dollar. A week ago, cocoa futures priced at COCOA a ton, April's record.

The main reason behind the significant growth of not only cocoa but also other food commodities is that this year promises to be very dry and hot.

Cocoa is sold in futures, meaning the expectations of poor harvest directly influence the price. In the other areas, the cocoa harvest has also been falling, but because of above-average rainfall, there has been an increase in crop diseases due to heightened wetness.

In addition to the potential shortage of supplies, cocoa prices are also being pushed by investors' increasing interest in infusing funds into agricultural products. If we look at Bill Gates' portfolio, we will find that Bill Gates is now one of the largest landowners in the United States. Thus, the agricultural market becomes one of the hedging strategies.

How to invest in cocoa?
Investors who seek ways to invest in cocoa may find it interesting to buy ETFs on this product. For example, the iPath Bloomberg Cocoa Subindex Total Return ETN is one of the most well-known exchange-traded funds, exposing investors to the performance of the Bloomberg Cocoa Subindex Total Return. This index reflects the returns from a basket of cocoa futures contracts.

Furthermore, Invesco DB Agriculture Fund allocates approximately 28% of its portfolio to cocoa futures, also offering significant exposure to the cocoa market. It seeks to track the DBIQ Diversified Agriculture Index Excess Return, which includes various agricultural commodities futures contracts.

In my opinion, buying shares of chocolate manufacturers might not be a good idea. Chocolate manufacturers often aim to maintain stable prices for their products to retain market share and consumer loyalty. This means that when cocoa prices rise, manufacturers may absorb some of the cost rather than pass it onto consumers.

Cocoa investing obstacles for private investors
Private investors may also face some obstacles when buying cocoa or other food commodities. For example, acquiring cocoa futures on the Chicago Exchange may require not only profound knowledge, but also serious investments. As for cocoa ETFs, these instruments may also not be suitable for all investors due to their complexity and low liquidity.

Moreover, cocoa commodity cycles are actually quite long. Therefore, investors need to understand whether they seek short-term speculation or adopt a long-term investment strategy. For those opting for the latter, patience and readiness to hold positions for extended durations become imperative.

Thus, before making any investments, especially in singular commodities like cocoa or grains, it's crucial to consult a professional due to the risks involved. Diversification is key to investing; while assembling a portfolio of various products increases the likelihood of returns, focusing on particular commodities like cocoa or grain can pose threats.