Who Invests and Trades in Cocoa Futures?
Cocoa futures offer market participants a way to hedge their risk and regain control over their cocoa investments. Producers and Marketers of cocoa can minimize the risk of price fluctuations in the cocoa market by using a short hedge, which locks in a fixed selling price for the cocoa that they produce. Thus futures allow them to get the specified amount in the contract, even if prices fall in the future. Consumers of cocoa, like chocolate companies, can use a long hedge to set a fixed purchase price for a specified quantity of cocoa as per their need.
Cocoa futures are also traded by speculators. Speculators have no vested interest in the underlying asset, that is, they will neither deliver cocoa nor take delivery for cocoa. They trade in and out of cocoa futures only based on speculations about the price fluctuations of cocoa over the trading period. They take on the price risk that hedgers are trying to avoid, because they hope to profit from the price movements. Cocoa speculators buy cocoa futures if they believe that the price of cocoa will go up, and sell cocoa futures if they believe that the price of cocoa will go down.
Cocoa Futures Contracts
Cocoa futures trade on the ICE exchange under the contract symbol “CC” in an open cry method. The contract size in 10 metric tons, and contracts are listed for the months March (H), May (K), July (N), September (U), December (Z). Price is quoted in dollars per metric ton and contracts are settled by physical delivery.
Cocoa also trade on the New York Mercantile Exchange (NYMEX), where a single contract is quoted in U.S. Dollars and Cents per pound, and represents 10 metric tons of cocoa. Cocoa is traded in March, May, July, September, and December for the next 23 months.
Cocoa beans trade on the NYSE LIFFE Exchange in London as well, where they are quoted in GBP.