Cocoa ETFs to Play the Chocolate Crisis

Cocoa futures soared to an unprecedented $9,640 a ton, marking a dramatic 58% increase in March alone. This surge is attributed to poor harvests in the Ivory Coast and Ghana, the world's leading cocoa producers, due to El Niño-induced heavy rains, crop damage, and the spread of black pod disease. Additional factors such as extreme heat, ageing cocoa trees, and illegal mining have further exacerbated supply shortages.

Cocoa Production Forecasts Plunge in Ghana and Ivory Coast

Due to the aforementioned adversities, Ghana has significantly lowered its cocoa production forecast for the current year to 650,000 tons from an initial 850,000. Similarly, Ivory Coast's mid-crop harvest, starting in April, is anticipated to plummet by 33% to 400,000 MT from 600,000 MT in the previous year, underscoring the severity of the situation.

Cocoa Processing Activities Stall Amid Rising Bean Costs

The escalating cost of cocoa beans has led to reduced or halted processing activities in some plants within Ivory Coast and Ghana, as they struggle to afford the rising prices. This has contributed to the tightening of global cocoa supplies, further fueling price increases.

Chocolate Companies Anticipate Higher Prices

Executives from leading chocolate producers such as Hershey and Cadbury have hinted at potential price increases for consumers in response to the cocoa supply shortage. With cocoa prices reaching record levels, companies are exploring various strategies, including pricing adjustments, to manage the situation effectively.

How to Invest in Cocoa

For investors seeking to capitalize on the rising cocoa prices, hoarding cocoa or chocolate bars won't do the trick. Luckily, financial innovation has opened up avenues for investors to tap into commodity markets, including cocoa.

European investors have a unique opportunity with WisdomTree Cocoa (COCO), the sole UCITS-eligible Exchange Traded Commodity (ETC) tailored to provide exposure to cocoa futures contracts.

This ETC tracks the Bloomberg Cocoa Sub Excess Return Index, aiming to replicate total returns after adjusting for fees. It's available for trading on both the London Stock Exchange (COCO; USD) and Borsa Italiana (COCO; EUR), with an expense ratio of 0.49%.

For those willing to embrace higher risk, there's the WisdomTree Cocoa 2x Daily Leveraged ETC (LCOC). This option offers leveraged exposure to cocoa, delivering a total return equivalent to twice the daily performance of the Bloomberg Cocoa Sub Excess Return Index (BCOMCC).

For instance, if the index rises by 1% in a day, the ETC would rise by 2%, excluding fees. Conversely, if the index falls by 1%, the ETC would decline by 2%, excluding fees.

This product has an expense ratio of 0.98% and trades on the London Stock Exchange (LCOC; USD), the Borsa Italiana (LCOC; EUR) and the German Xetra (4RUP; EUR). 

Is there a Cocoa ETF in the United States?

Unfortunately, there are no exchange-traded products that provide pure exposure to Cocoa futures in the United States. The last product that did so was the iPath Bloomberg Cocoa Subindex Total Return ETN (NIB), which was delisted in June 2023.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.