If you were recommended to invest in soft agricultural commodities, you should pause before investing, to determine whether this is a true story of "safe income" and "no lose situation". It is important to remember that an examination of the investment, may reduce the risk of loss, and this may save you a lot of money.
First of all it is important to note that the purpose of investing in those commodities types such as cocoa is to show over time trends of this investment value rather than referencing only short-term trends (such as days or weeks). The importance stems from the fact that apart from investing in physically purchase of cocoa, there are other investment options branching through the initial investment.
Cocoa powder is a dark powder produced by drying and grinding cacao tree beans. It is one of the components of chocolate and other sweets. Cacao trees grow in the forests across the world, especially in tropical areas and Countries located on the Equator: South and Central America, Africa and East Asia. These days Ghana, Cameroon, Ivory Coast, Nigeria and Brazil are the countries that are considered to be the world's largest cocoa suppliers.
The number of the world's cocoa farmers is above 5.8 million and there are between 40-50 million additional people whose livelihood depends on cocoa.
If we look closely on the annual change in the cocoa prices contract records during the past five years alone we will not be able to identify any pre-recognizable trend;
- January 2010 - December 2010: Decrease of 10%
- January 2011 - December 2011: Decrease of 30%
- January 2012 - December 2012: Increase of 5%
- January 2013 - December 2013: Increase of 20%
- January 2014 - December 2014: Increase of 5%
But if we look closely we will find that on a monthly chart we can identify a pattern in which during the months March-September the price is usually on a rise.
As well, if we dig just a bit deeper, we can find that since 2013 the chocolate consumption in China had increased in to a level where it seems as if by 2017 they will become the number one chocolate consuming country instead of Switzerland where the average consumption for each person was about 9 KG a year during 2014.
A sufficient increase in cocoa prices will possibly result in an increase in the planting and processing of cocoa trees. Cocoa does not come to fruition for at least two years, therefore increasing the supply takes time and so it's a good time to remind ourselves that an African farmer gets about 1% of the final point of sale of the Western commodities' market price. Investing in the power supply of chocolate making would reasonably be questionable for him.
While the ongoing up-trend of chocolate demand is expected to continue in the future, the supply will remain affected by various factors, the most important of them (and the most severe implications for predicting) is global climate change, including droughts and rain out of season.
The globalization has made it easier for plants disease to spread as well. Brazil, for example which was the second largest exporter of cocoa in the world, became an importer for cocoa beans only, following the tree disease that hit the country. So far none of those serious tree diseases were found in Africa, but biologist believe that it is just a matter of time.
Bottom line is of course, that even if there is no such thing as 100% security within the market, it seems like due to the lack of supply and ongoing increasing demand there is a good opportunity that can be taken with buying cocoa.