Cocoa is an important crop that is consumed by billions of people around the world. When processed, cocoa is mostly used as a beverage and in also in the manufacture of confectionaries. Most of the world’s cocoa comes from West African countries of Ivory Coast and Ghana, which have a tropical climate. Once harvested and processed, it is usually bought by countries like United States, Netherlands, Germany, and France. The biggest companies in the industry are Mars, Ferrero Group of Luxemburg, Mondelez, Hershey, Meji, and Nestle.
In recent years, the price of cocoa has been declining as the industry has become consumed with oversupply. This oversupply happens because most of the cocoa crops are usually planted by households in Ghana and Ivory Coast. Unlike in the oil market where there is OPEC, there is no single organization to represent the interests of the industry. Therefore, they cannot limit production when there is an oversupply.
According to the International Cocoa Organization, which is based in Ivory Coast, he production is expected to increase in 2019. The African production will continue taking a two-third market share of the global market. In February, the amount of cocoa that arrived in the Ivorian coast for shipment was more than 1.469 million tons, which was higher than the 1.343 million tons in the same period of 2018. In Ghana, the amount of cocoa at the port in February was 674,735, which was higher than the 611K in the same period in 2018. The same upward trend was seen in Cameroon. The demand for the commodity too is increasing. According to the same report, the processing at origins in Ivory Coast increased to 135K tons, up from 124K tons. The same trend has continued in other countries.
The increase in demand has happened mostly because of the population growth and the rise of the middle class in Asia. In 2000, the global population was more than 6 billion people. By 2020, the population will have grown to more than 7.5 billion. As the population increases, so does the demand for agricultural commodities. Most importantly, the middle class in Asian countries is growing.
This year, the price of cocoa started by rising. It reached a high of $2.367. The price then declined in February and reached a low of $2.144. In March, the price has been a bit volatile although it has moved slightly higher. The volatility is evidenced by the Average True Range (ATR) indicator, which has been rising. This price has remained along the 21-day and 42-day moving averages. There is a likelihood that the price will test the important level of $2.3 in the short term.
