Now is the time to get out ahead of market volatility in cocoa

The U.S. National Oceanic and Atmospheric Administration or NOAA is predicting rain for the next 6 days for West Africa; fantastic news for cocoa farmers.West Africa is the largest cocoa producer in the world and the rain could help crop development. The Ivory Coast and Ghana represented 60% of the global cocoa production last growing season, according to London’s International Cocoa Organization. 

NOAA’s website indicates most of West Africa should receive at least 2 inches of rain by the 16th of May.

Speculation on dry weather and whirling dust winds from the desert has sent cocoa an up an impressive 7% on concerns the winds would damage production output.

West Africa’s mid-crop, the smaller of two plantings usually planted in April, has been delayed due to the drought like conditions this year.

The much needed rain these next seven days could help a crop yield that is expected to be 14,00 metric tons higher than global demand in the 2011-2012 season ending September 30. Revised expectations from last month had analysts looking for a shortage of more than 40,000 tons.

With the mid-crop in progress and the possibility of significant rain, traders may want to get out in front of the volatility. If the rain is significant in the Ivory Coast and Ghana, the price of cocoa could see a drop as drought conditions have been priced in.

Traders can gain access to the cocoa market via the iPath Dow Jones-UBS Cocoa Total Return Sub-Index (NIB, quote) ETN. The Dow Jones-UBS Cocoa Subindex Total Return is a single-commodity sub-index currently consisting of one futures contract on the commodity of cocoa. Keep in mind this is an ETN, not an ETF.

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