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June 2011 Commodity news and trends


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The price of cocoa beans has doubled over the last six years, with strong price rises over the last year, and has exploded up since the beginning of 2011.

Because cocoa beans can be stored for an indefinite period, large stocks often overhang the market, normally keeping downward pressure on raw bean prices. But with the recent price events, stock holdings are increasingly speculative, with purchasers hedging against possible future price rises.

The slowness of response of cocoa bean supply to price responses, due to the long lead time needed for cocoa tree cultivation, suggests that some, but not all of recent movements in cocoa prices will be given back.

The vast majority of cocoa production takes place in several equatorial countries, tended by small producers who know the special needs of the cocoa tree. Producing areas are principally the Cote d'Ivoire-Ghana area in western equatorial Africa and Indonesia. The cocoa tree competes among growers with tropical forests which can produce other products, such as rubber and palm oil.

The cocoa tree needs five years to grow before its 10-15 year production life. It has strict climate and soil requirements: high humidity, the temperatures and rainfall found only in equatorial regions, along with the crucial shade in its early life which is best provided by situating cocoa trees where they are shielded under the canopy of the tropical rainforest.

After harvesting, fermentation and drying, cocoa beans are shipped around the world, warehoused and then proceed through several more stages of processing before being made into chocolate confections and other products by the handful of multinationals which are household names throughout the world, and which are headquartered in countries with climates which in no sense approximate the equatorial.

The length of the production chain, from cocoa bean to edible chocolate, means the link between cocoa bean and chocolate prices can be variable.


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