Cocoa Ice Futures Contract
The ICE (Intercontinental Exchange) Cocoa contract is the global benchmark for the world-wide cocoa market. The contract prices the physical delivery of exchange-grade product from a variety of African, Asian and Central and South American origins to five US delivery ports. Cocoa trades actively in the Singapore, London and New York time zones.
Cocoa growths, are categories into three classifications, according to the Intercontinental Exchange web site. Group A-Deliverable at a premium of $160 per ton which includes crops of origins that come from Ghana, Lome, Nigeria, Ivory Coast and Sierra Leone. Group B-Deliverable at a premium of $80 per ton which includes crop from Bahia, Arriba, Venezuela, Sanchez. Group C-Deliverable at par which includes origins from Haiti, Malaysia and all others.
The ICE Cocoa futures contract requires the physical delivery of cocoa of certain minimum standards delivered to one of three licensed location in the United States. These points include warehouses in the Port of New York District, Delaware River Port District, Port of Hampton Roads, Port of Albany or Port of Baltimore.
The contract prices in dollars per metric ton, and each ICE Cocoa contract contains 10 metric tons. The minimum price movement is $1 per metric ton, which equals $10.00 per contract. The active contract is for delivery in March, May, July, September, and December. Futures contracts are not subject to a daily price limit.
The time zones for trading include:
|NEW YORK||4:45 AM – 1:30 PM (04:45 – 13:30)||8:00 PM (20:00)|
|LONDON||9:45 AM – 6:30 PM (09:45 – 18:30)||1:00 AM (01:00)|
|SINGAPORE||5:45 PM – 2:30 AM (17:45 – 02:30)||9:00 AM (09:00)|
How to Trade Cocoa
Cocoa futures have traded in New York since 1925, first on the New York Cocoa Exchange and subsequently on the New York Board of Trade and finally on the ICE Futures. The ICE Futures U.S. Cocoa contract is the benchmark for world cocoa prices.
Cocoa is a critical export, especially for West African nations such as Ghana and the Ivory Coast. The crop’s importance to the eight countries that supply the world is sufficient to keep cocoa a central topic for global agricultural. These areas of the globe are subject to geopolitical risk which provide significant volatility for the cocoa contract.
Cocoa has a relatively tight correlation to the value of the British Pound given the currencies long standing relationship with many of the West African countries. Many cocoa traders following the fluctuation of the GBP/USD as a way of analyzing cocoa prices.
The Commodity Futures Trading Commission, issues its Commitment of Traders Report, and describe positions held by commercials, managed money and smaller traders. Many traders look to see the size of the open interest held by managed money, since this is the speculative money trading the cocoa futures market, and is subject to change if there is a large price move. While there are times when rapid accumulation of futures will describe a trend that is perpetuating, open interest can also be used as a contrarian indicator, as hedge funds are much more likely to exit a futures position compared to a commercial hedger.
Risk transfer is the second purpose of a futures market. Producers as well as consumers use cocoa futures to mitigate flat price risk. Producers will use the futures market to lock in future prices to capture a fixed cash flow based on future production. They can accomplish this by shorting a futures contract and delivering their product into the short futures position. Consumers, such as Hershey’s will purchase futures contracts to fix their cost for making a final product such as a chocolate bar.