Cocoa Price Pauses Ahead of Key Meetings in June

Source: Forex News

Cocoa
is a major agricultural commodity. Unlike tea and coffee, cocoa is viewed as a
luxury among most people. As a result, the demand for cocoa-made products like
chocolate has increased, partly because of the increased demand by Asia and
other emerging markets. There is also demand in the developed countries of
Europe and United States.

In
these countries, the price of chocolate bars has continued to go up. The
paradox of this is that the price of cocoa beans has not risen as much. As
such, the farmers who grow the crop have continued to remain being among the
poorest people in earth. More than 60% of the world’s cocoa is grown in Ghana
and Ivory Coast.

It
is against this backdrop that the two countries are having an OPEC moment. OPEC
was formed to ensure that there was not too much supply of crude oil and to
ensure that the prices remained stable. Over the years, OPEC, which produces
more than 30 million barrels of crude oil every day has succeeded in ensuring
the price stability of the commodity. Similarly, Ghana and Ivory Coast farmers
have shown the interest in forming such a body.

The
two countries have decided to build large warehouses to store the surplus cocoa
beans. They are also considering setting a floor for the price of cocoa. The
goal is to ensure that the farmers get the best prices for their produce. The
two countries will hold meetings with stakeholders on 11th June and on June 18
to discuss some of these measures.

However,
past efforts to control this price have failed because of the level of poverty
in the two countries and the nature of corruption. The big buyers such as Hershey’s
and Mondelez have in the past used tricks to bypass such measures.

The
two countries usually use futures to sell the cocoa. They sell the cocoa to the
buyers before planting, which guarantees them income. This measure will likely
be discussed because experts believe that the farmers are getting a raw deal.

In
the past few months, the price of cocoa has been trading within a range as
shown below. The high of the range has been $2447 while the floor has been
$1985. On the chart below, the price is along the 25-day and 50-day moving
averages. The price is also between the range described above. The pair will
likely maintain this range ahead of the meetings expected next month.

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