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.
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