If you’re crazy for chocolate, you’re certainly not alone. The commodity has absolutely skyrocketed in price, surpassing record highs. In fact, it’s now more than doubled the last record high seen a whopping 40 years ago. The price is now at US$9,943, coming down only slightly after passing US$10,000 per metric ton.
So, what’s going on? Let’s get into why of all things, cocoa prices are surging and where investors can get in on the action.
What’s happening
There are a few reasons why cocoa prices are surging in price. Bad weather conditions in major cocoa-producing countries have caused a supply shortage – particularly in West Africa, which has been significantly impacted.
Furthermore, El Nino weather patterns brought down heavy rain, followed by extreme heat. This caused ideal conditions for crop disease like black pod to spread amongst cocoa plants. Now, this has resulted in multiple years of lower cocoa bean output.
The demand, however, has never been higher. Despite the supply crunch, demand for cocoa is also expected to continue growing. This comes from the increased chocolate consumption, which includes in China, where chocolate is growing immensely popular. So how can investors get in?
“Big Chocolate”
If you’re wanting to get in on cocoa demand, then it’s probably the best time to invest in “Big Chocolate.” This would include some of the largest companies in the world that invest heavily in chocolate production.
First off, I would consider the largest companies by market capitalization. That would include Mondelez International (NASDAQ: MDLZ), formerly Kraft Companies. This company boasts a strong brand portfolio and a history of steady growth. It’s also heavily invested in chocolate. However, the price of chocolate rising has certainly negatively impacted the stock since the bad weather report.
That being said, MDLZ is one of the cocoa stocks I would still consider as it has a healthy balance sheet and diversified portfolio that spans beyond cocoa. That’s great, because demand waxes and wanes. This provides investors with more diversification.
Another option would be to consider Nestlé (XSWX: NESN). This is a giant in the food and beverage industry, providing you with even more exposure to both chocolate as well as other income sources. The company has a significant chocolate presence, but also many other products.
While the stock price has also dipped with the rising cost of cocoa, again this diversification has helped. And as cocoa prices come back down, demand will likely remain higher for Nestlé, providing a solid long-term investment for today’s shareholder.
Cocoa futures
If you want to invest directly in cocoa futures, then you could consider an investment in something like WidsomTree Cocoa (OTC:COCO). This fund issues an exchange-traded commodity (ETC). Similarly to an exchange-traded fund (ETF), it tracks the price of the commodity, in this case cocoa.
Investors can agree to buy or sell cocoa beans at a specific price on a future date. By holding COCO, you would be indirectly investing in the cocoa futures market. This is certainly the most direct way to get in on cocoa investing.
All in all, cocoa stocks look like they’re going to continue to do well. So whether you get in directly on the price of cocoa, or get into cocoa stocks with exposure to the cocoa markets, there are multiple ways to get involved.
