How to Invest in Cocoa
Though uses of cocoa are limited—this commodity is used primarily in the production of chocolate—the market for this resource is massive. Though demand for cocoa as an investable asset is not nearly as large as the demand for some other commodities, it has some appeal to those with a short-term focus because supply shocks can send prices higher in a short period of time.
Investors looking to gain exposure to cocoa prices have multiple options; while physical possession is not feasible, futures contracts and exchange-traded products offer opportunities to access this commodity.
Ways to Invest in Cocoa
There are 2 ways to invest in Cocoa: ETFs and Futures. Click on the tabs below to learn more about each alternative.
What are Cocoa ETFs?
Achieving cocoa exposure through exchange-traded products allows investors to minimize trading activity and position maintenance, as the exchange-traded structure is ideal for those who value liquidity and transparency. The best pure play option for U.S. investors is the iPath Dow Jones-UBS Cocoa Total Return ETN (NIB), which is linked to an index comprised cocoa futures. It should be noted that NIB is an ETN, and as such exposes investors to the credit risk of the issuing institution.
European investors will generally have additional opportunities for gaining exposure to cocoa through exchange-traded products; ETF Securities offers products delivering leveraged and inverse exposure to this commodity as well.
What are Cocoa Futures?
Investors seeking exposure to cocoa have the option of investing in futures, standardized contracts to buy or sell a specific asset as a specified price and date in the future.
Cocoa futures are traded on the New York Mercantile Exchange (NYMEX), with prices quoted in U.S. Dollars and Cents per pound. A single contract represents 10 metric tons of cocoa with a minimum fluctuation of $1.00 per ton. Trading is conducted in the March, May, July, September, and December cycle for the next 23 months. All contracts are subject to the rules and regulations of NYMEX.
Cocoa futures are also traded on the ICE under the symbol CC. ICE Cocoa contracts are also for 10 metric tons, with contract listing in March, May, July, September, and December. Settlement for ICE cocoa contracts is physical delivery.
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