Cocoa
Cocoa is the clearest example in this library of what happens when a market cannot respond to its own price - two countries, fixed farmgate rates, and ageing trees.
At a glance
- Traded as
- Dried, fermented cocoa beans
- Quoted in
- US dollars per tonne in New York, pounds sterling per tonne in London
- World production
- Roughly 4.5 million tonnes in a normal year
- Largest producer
- Cote d'Ivoire, close to two fifths of world output
What is actually being traded
The traded product is dried, fermented cocoa beans. Processors grind them into cocoa liquor, which splits into cocoa butter - the expensive part, responsible for how chocolate melts - and cocoa powder. The relative prices of butter and powder determine the grinder's margin, and a squeezed margin is the mechanism by which high bean prices eventually destroy demand.
New York quotes dollars per tonne and London quotes pounds per tonne, with the spread between them reflecting currency and the origins deliverable against each contract. Both are physically deliverable.
Grindings data - how many tonnes processors actually ground in a quarter, published by regional associations - is the closest thing this market has to a demand indicator, and it is watched accordingly.
Grindings are the demand signal. They are published quarterly by region and show whether high prices are actually destroying consumption.
What it is used for
Cocoa goes into chocolate confectionery and almost nowhere else. That single-use structure means demand is a consumer-goods story: chocolate makers face a retail price they can only raise so fast, so they respond to expensive beans by shrinking bars, changing recipes and substituting vegetable fats where regulation allows.
Those responses are slow, which is why cocoa demand looks inelastic for a year or two and then quietly falls. The grindings data is where that shows up first.
- Chocolate confectionery
- 80%
- Bakery, drinks and desserts
- 14%
- Cosmetics and other uses of cocoa butter
- 6%
Source: ICCO Quarterly Bulletin of Cocoa Statistics
Where it comes from
West Africa grows roughly two thirds of the world's cocoa, and Cote d'Ivoire and Ghana alone account for about half. Nowhere else in this library is a global market so dependent on two neighbouring countries with similar climates, similar tree stocks and similar diseases.
The trees are the underlying problem. Much of the West African crop grows on ageing stock planted decades ago, on soil that has been farmed continuously, tended by smallholders whose income is set administratively rather than by the world price. Replanting requires capital and several unproductive years, and the incentive to do it has been weak for a generation.
| Name | Share |
|---|---|
| Cote d'Ivoire | 38% |
| Ghana | 13% |
| Ecuador | 10% |
| Cameroon | 6% |
| Nigeria | 6% |
| Rest of world | 27% |
Source: ICCO and USDA estimates
Behind the subscription
The rest of this entry is the part that changes a decision: what moves the price, which contract sets it, who ships it and where that can be cut off.
What moves the price
Why a record price did not bring more beans, how fixed farmgate rates break the supply response, and the six other forces that set cocoa.
Where it is traded
The two exchange contracts, what is deliverable against each, and why the spread between them is a currency and origin story.
Who ships it, and where it concentrates
The route from West African farm to European grinder, and the two chokepoints - one industrial, one at a land border - that shape the flow.
How this shows up in prediction markets
Why cocoa thresholds need a wider base rate than any other soft commodity, and the three data releases that actually settle the story.
Included with a subscription
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Frequently asked questions
- Why did cocoa prices rise so dramatically in 2024?
- Poor West African harvests met a supply chain that could not respond. Farmers are paid an administratively fixed price rather than the world price, so the spike gave them no incentive to invest, while disease, ageing trees and depleted exchange stocks turned a shortfall into a scramble for physical beans.
- Why does a higher price not bring more cocoa?
- Because the farmgate price in the two largest producers is set by state bodies that sell the crop forward, so the world price does not reach the farm. Even where it did, cocoa trees take years to reach full yield - the supply response is measured in seasons at best.
- What are grindings?
- The quantity of beans processors actually grind, published quarterly by regional associations. It is the market's demand indicator: falling grindings show that high prices are destroying consumption, which is usually what ends a price spike.
- Why are cocoa beans smuggled between Ghana and Cote d'Ivoire?
- Because each country sets its own farmgate price. When the gap is wide enough, beans cross the land border to be sold where the price is higher, which distorts both countries' official production figures and therefore the world balance.
Primary sources
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