Key takeaways
- Cocoa was first cultivated 5000 years ago by the Mayans before being brought back to Europe by Spanish explorers.
- 60% of cacao production is concentrated in a few West African countries.
- The price of cocoa is subject to many external factors, including the long growing process, the strength of the British pound, and climate change.
- There are many ways to get exposure to cocoa, such as futures, ETFs, stocks or CFDs on cocoa.
The beautiful bean
Cocoa is derived from the dried and fermented seeds of a plant called Theobroma Cacao. “Cacao beans” is therefore a misnomer; the “pods” they’re extracted from are fruit, though unexportable due to having a shelf life of about ten minutes.
Cocoa has a long history, as it was first cultivated by the Mayans some 5,000 years ago. This treasured commodity was discovered by Spaniards during the invasion of Latin America in the 15th century, and it started to become popular in Europe in the 17th century.
Today, cocoa is enjoyed in a thousand different ways all over the globe, including chocolate. It has become a staple for gifting and traditional celebrations – it certainly makes an appearance around Valentine’s Day.
The global cocoa market grew at a rough CAGR of 3.4% between 2020 and 2026, reaching a market size of approximately $13.5 billion in 2025 from $11 billion in 2019. The chocolate market is expected to see significant growth in future, especially as emerging economies’ expanding middle classes develop a taste for it.
Reasons for investing in cocoa
There are a variety of advantages to investing in cocoa, as with other types of agricultural commodities. First, there is a speculative dimension smart traders can benefit from: with a particular geographic concentration and production cycle that’s very dependent on externalities, prices may vary sharply depending on weather and politics.
Some traders believe that the demand for cocoa will soon rise. The reasons for this aren’t hard to understand. Emerging markets are getting wealthier, and the demand for chocolate, a luxury product, can be expected to rise. Also, the health merits of dark chocolate have increasingly been recognised, making it far more popular among trend-conscious market segments.
Finally, investing in cocoa or other commodities is also a good way to diversify one’s portfolio, because it is uncorrelated with other traditional financial assets.
What makes the price of cocoa rise and fall?
Six main factors influence the price of cocoa, namely: supply, weather, the production cycle, infrastructure and transportation, consumer preferences, and the British pound.
- Geographic location of the plantations: Worldwide cocoa production is heavily concentrated geographically, with 60% of the total production coming from a handful of West African countries. Any regional political issue – which the Ivory Coast has consistently experienced since its independence – may have an impact on cocoa volumes and prices.
- A healthy climate: Cacao is a delicate plant with specific needs. It requires plenty of rain and warm weather to thrive. Without these ideal conditions throughout the 5 years a tree takes to mature, production quality and quantity can be badly affected. Drought or heavy rain are major enemies of cocoa plantations.
- An inflexible production cycle: Since it takes about 5 years to go from sapling to productive tree, market supply can not turn on a dime when demand changes suddenly. Also, as cocoa is very perishable and cannot be stored for very long, stockpiles cannot smooth out large variations in price.
- Transportation challenges: Being grown in impoverished parts of the world with sometimes very limited infrastructure, cacao sometimes follows a complex route from farm to exporter. Poor road conditions due to excessive rains, for example, can severely impair the transit, creating shortages and increasing prices. Much of the industry has a high level of intermediation, with small-scale farmers selling their crops to middlemen; this adds another layer of delay and complexity.
- Changing consumer preferences: These generally have a positive impact. With dark chocolate being more acceptable as a “healthy” snack, the demand for chocolate continues to rise in developed countries. Furthermore, the production of dark chocolate requires more cocoa per pound than milk chocolate. Emerging countries, and their increasingly wealthy residents, are also expected to consume more chocolate in the coming years.
- The British pound, mate: Cocoa is one of the few commodities that are primarily traded in British pounds. If the pound happens to weaken, cocoa will most likely become more expensive on the London futures market. (However, US cocoa futures are traded in dollars.)
Are there risks investing in cocoa?
No investment in the history of money has ever been totally safe. Firstly, growing concerns about obesity could curtail demand: although dark chocolate is now more accepted, it does have a high concentration of fat, while milk chocolate is rich both in fat and sugar. Considering how difficult people find it to change their diet, though, we can expect demand to remain inflexible.
Unlike, say, OPEC with petroleum, there’s little international coordination between producers. This could conceivably lead to an oversupply developing. If, for instance, West African countries that supply cocoa manage to attain political stability and upgrade their production capacities, there could soon be a cacao glut, which would put pressure on prices.
Finally, cocoa is a very volatile commodity, for which the price may move for any the reasons mentioned above, and sometimes without any clearly discernable reasons at all.
How does one actually invest in cocoa?
Since planting a cacao tree in your back garden is probably not practical, let’s look at some specific investment vehicles offering exposure to the cacao market:
Futures: Futures contracts are derivative financial instruments that obligate parties to transact the underlying commodity at a specific time and price in the future. On the Intercontinental Exchange (ICE) and the New York Mercantile Exchange (NYMEX), contracts on cocoa are based on lots of 10 metrics tons each.
These contracts have expirations for the months of March, May, July, September and December. Simply put, futures allow you to bet that the price of a commodity will either rise or fall by the time they come due.
Cocoa ETFs: One of the simplest ways of buying cocoa-related equities is through an Exchange-Traded Fund (ETF). Though few specialise in cacao, a number of them put a portion of their investment in cacao futures or stocks related to the commodity. Due to volatile prices, their exposure may vary significantly from month to month.
Cocoa CFDs: Contracts For Difference (CFD) can also be a great way to bet on cocoa prices. The potential profit or loss on a CFD is the difference between the price of the commodity at the time of purchase and the current price. These are a good alternative to get exposure to cocoa without having to own the underlying cocoa asset.
Cocoa stocks: This is a harder pick as there is no publicly traded, pure-play cocoa company engaged in the production and sale of cocoa. You can nevertheless pick chocolate-producing companies that have important ties to the commodity, such as:
- Hershey Co (USA)
- Mondelez International (USA)
- MEIJI Holdings (Japan)
- Lindt & Sprüngli (CH)
You can also have a look at companies active in the importation and transformation of the commodity:
- Olam International
- Cargill Inc.
- Barry Callebaut
- Nestlé S.A.
Conclusion
Though cacao, as a widely traded agricultural commodity, isn’t exactly an alternative investment, it does share some of the same characteristics. Firstly, fickle consumer attitudes can quickly alter its value, just like with abstract art or vintage wines.
Also, because virtually all people have an emotional connection to the final product, you may find yourself evaluating cacao investment opportunities from a standpoint that’s not entirely objective. As always, this psychological influence is something to guard against.
