Navigating the Commodity Markets with Freight and Spreads
Although cocoa is one of the world’s smallest soft commodity markets, it has global implications on cocoa importers and exporters, food and candy producers, and the retail industry. Historically, from 1960 to 2014, Cocoa has reached an all time high of $5,368/MT in July of 1977 or about $20,635/MT in 2014 money.
Weather risk plays an important role for every agricultural commodities. Observations on the cocoa field and weather stations ?
Because Cocoa has no substitutes it has a very inelastic supply. Price patterns in the 70’s suggest that if trend is higher, prices can show no caps during many years.
The International Cocoa Organization provides grinding, production, demand, ending stocks statistics http://www.icco.org/
Regression model for cocoa ending stock/grind ratio suggests that most price volatility will arise at low ES/Grind ratio level.
Credit: An Analysis of the Ending Stocks to Use Ratio in Forecasting Cocoa Prices by Brian W. Meinken…
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