A beginner’s guide to cocoa: Price, uses & market overview

By:

Prash Raval

Prash is a financial writer for Invezz covering FX, the stock market and investing. For over a decade he has traded spot FX full time while... read more.

Updated:  Aug 28, 2024

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On this page, we explore everything you need to know about cocoa. Gain insights into cocoa market trends, pricing mechanisms, and the environmental impact of cocoa. 

Read on to learn more about this popular commodity and find links to beginner friendly guides explaining how you can get involved in cocoa. 

What is cocoa?

Cocoa is the main ingredient in chocolate and is therefore a globally popular crop. Cocoa beans are dried seeds that come from cacao trees. These trees grow in tropical regions around the world. Over the centuries, cocoa beans have grown in economic importance and are even significant in some cultures. 

Cocoa cultivation stretches back over 3,000 years. Cocoa arrived in Europe following the Spanish conquests and quickly became a popular hot drink and confectionery item. These days, over 4 million tonnes of cocoa are produced yearly. The Ivory Coast and Ghana are leaders in global production. 

Besides being a popular food item, cocoa is a commonly traded commodity. Cocoa bean prices and futures contracts are traded actively on exchanges like ICE Futures Europe.

Cocoa market overview

The cocoa market is worth billions of dollars per year. When it first was discovered, cocoa beans served as a form of currency. In the 19th and 20th centuries, the global demand for chocolate surged and cocoa became a major cash crop exported around the world. 

This led to the establishment of commodity exchanges for traders to set benchmark cocoa bean prices, most prominent today in New York and London.

Since the early 2000s, the value of cocoa has risen steadily and its price has climbed over 400% in that time. 

More recently, its price has suffered from increasingly health-conscious consumers, particularly in the US, Europe, and China. Where there has been spikes, it has often been down to bad weather conditions, but there have been some slumps as well, most notably to decade-long lows in 2017.

The price has always been volatile, however, and there are lots of forces at work. More demand from India is helping to balance out the fall in the western world, while bumper harvests in Africa have added even more supply into the mix.

Is cocoa valuable? 

Yes, cocoa is a valuable commodity and there are numerous reasons why investors are attracted to the market. We have highlighted some of these key fundamentals below, explaining what they are and why they matter.

• Diversify your portfolio. When you invest in a commodity like cocoa, you are effectively diversifying your portfolio. The diversification of assets hedges against specific-asset loss. As cocoa is the key ingredient to the seemingly insatiable global craving for chocolate, adding cocoa to your portfolio can hedge against the losses from other under-performing assets.
• Hedge against inflation. All investors worry about the risk of inflation causing a loss in the value of their portfolio. Inflation occurs when currency loses value over the years; as this occurs, the prices of essential commodities rise and prove profitable for investors. As such, investing in cocoa hedges against the rate of inflation. 
• Demand for chocolate. Chocolate cannot be made without cocoa beans. Cocoa butter and/or cocoa powder are the key ingredients used in making chocolate, and both are derived from cocoa beans. The global demand for chocolate is consistently rising, making for an industry worth hundreds of billions – investing in cocoa can prove profitable if you track and stay on top of this demand.

How to invest in cocoa

You can invest in cocoa by using a commodity trading platform. These platforms offer a range of commodities and are very easy to use. There are different platforms suitable for specific requirements. 

Some let you buy cocoa stocks or cocoa ETFs, others let you trade cocoa, and many are designed for investing in the grain. Visit our dedicated guide to discover how to invest in cocoa.

Cocoa in your investment portfolio

A diverse investment portfolio can help protect you during market uncertainty, and the inclusion of cocoa can add value while allowing you to spread your money across various markets. 

Cocoa often moves independently to traditional investments like stocks and bonds. You can include cocoa in your portfolio as a hedge against potential losses. During times of economic uncertainty, investors view commodity grains such as cocoa as attractive options. 

Cocoa’s long history and the fact it is a popular food and beverage product across the world, make it a good long term play.

Cocoa vs other commodities

Cocoa is an agricultural commodity like wheat, corn, and coffee. Each commodity is unique in its own way and offers different features for investors and traders. You can learn more about specific agricultural commodities using our dedicated guides below. 

• Wheat. Wheat is a grain that is grown around the world and is used for various foods. 
• Corn. Corn is one of the most versatile commodities with many uses, including livestock feed, biofuel, oil, and food. 
• Rice. Rice is the most popular grain commodity and a staple for half the world’s population 
• Soybean. Soybean is a major global commodity used for livestock feed and cooking oil.
• Coffee. Coffee is the most consumed and popular beverage in the world. 

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