Online Trading Education

Who Doesn’t Like Chocolate?

Who Doesn’t Like Chocolate?
Geoffrey A Smith

The price of cocoa has been on the move. Cocoa is the base for making chocolate. The beans are grown in pods on cocoa trees. When harvested, they are dried and shipped, and once they reached the chocolate producers, they roast and grind the beans to make their chocolate. And who does not like chocolate? The demand has been increasing as of late. Asia holds 3.7 billion people (over half the world’s population) and they are growing a sweet tooth. Consumption has doubled since 2009 and the increase is expected to continue. This is coupled with the dark chocolate demand in Europe and the US due to the health benefits. And since dark chocolate takes less milk than “regular” milk chocolate, this has put more of a demand on cocoa.

Demand is not the only thing that affects cocoa. Since it is a plant, there are weather concerns. This late spring, there were floods in Ivory Coast and Ghana (where 70% of the world’s cocoa is produced) that hurt the crop and washed out roads. Recently things have dried out and the buyers are holding off in worry of damaged or poor quality cocoa beans.

With all that has happed over the past year, the weekly chart below shows you what strong demand and constant or low production can do to a market.

Who Doesn't Like Chocolate Graph
The moving averages on the chart are a 3, 21, 65 simple moving average. Notice how cocoa has been bouncing off the 21 week average on the way up. As long as cocoa (CCZ4) stays above 3080, it will remain strong. With the current price above 3200, traders may need to wait for a pull back before entering or buy around 3200, and sell a call against it to finance a bigger protective stop. Next year is a new year for growing, and the trend could change, but for now, being long is the path of least resistance. Good luck trading!