Cocoa beans are the dried and fermented seeds of Theobroma cacao. Processing cocoa beans delivers cocoa powder and butter which are ingredients for chocolate. Cocoa beans are produced in areas close to the equator in wet, tropical climates. The main producers of cocoa based products are the United States, the Netherlands and the United Kingdom. There are currently 3.000.000 tonnes of cocoa produced annually and this number is steadily increasing over the last thirty years. The three biggest producing nations are Cote d’Ivoire, Ghana and Indonesia.
Cocoa was first consumed by the Olmecs, a civilization in Mexico, around 1500 B.C. They realized the fruit was edible by observing rats eating the fruit. In the early stages it was crushed and mixed with water and spices and consumed as a beverage. The Mayans and Aztecs quickly adopted the cocoa beverage and also developed effective methods of cultivating cocoa beans. These civilizations used the beans also as a measuring unit and a form of currency. When the Spanish discoverers first tasted cocoa, they were immediately interested in this new beverage and transported it back to Europe, where it became highly popular in the 17th century. During the conquest of the native tribes, the Spanish started setting-up cocoa plantations in order to supply Europe with cocoa and start a highly lucrative trade business. With the rising popularity of cocoa drinks in Europe, the Europeans empires started cocoa production in their respective colonies in Africa, where the climate and soil were perfect for cocoa production. Not until the start of the 19th century were discoveries made to enable cocoa to be produced as powder and as chocolate bars. From this moment on cocoa was no longer a luxury product and became available for all layers of society.
Production of Cocoa
The production is a highly labor-intensive process. The entire production cycle is performed by hand and the majority of the cocoa farms are family owned businesses. The worldwide production of cocoa is almost exclusively performed on these small farms of no bigger than 12 acres.The cocoa trees are native to the hot and rainy climate of areas around the equator. The fruits or pods of a cocoa tree have a unique characteristic as they grow directly from the trunk or large branches of the tree in comparison to most fruits, which grow at the end of branches.
The pods change color during their ripening process and when they turn yellow or orange, they are ready to be harvested. A single tree can be harvested a various times as the various pods will not ripe at the same time. The trees are therefore checked numerous times during harvest time to determine each pod separately. This is also the reason the harvest is performed by hand, as machines are not able to determine which pods are ready for harvesting. The workers use a large knife on a pole to cut the pods from the tree.
The beans are cut open with a machete and the beans and pulp is separated from the waste and laid out onto grates for several days. During this period the beans and pulp undergo a process called “Sweating”. This process enables the pulp to liquefy through fermentation. The liquefied pulp slowly drips of the beans and leaves the beans ready for further processing. The fermentation is critical to the quality of the cocoa beans, as this chemical process alters the eventual flavor of the beans.
The next step is the drying of the beans. This is commonly performed by placing the beans on a bamboo mat and let the sun dry them for several days. In rainy climates the beans are dried indoors and sometimes with artificial hot air. This method is less desirable as this may cause issues with the quality. During the drying process, the beans are shuffled multiple times to enhance the drying process and quality of the beans.
When the beans are completely dried, they will be ready for transport. The beans are first collected on central collection sites, where the numerous farmers of the surrounding area can sell their beans. The beans are then mixed with beans from other farms and are bagged in jute bags of 200 pounds each. These bags are transported to a shipping center where they will be loaded onto ships. The most common destinations for the beans will be either the United States, the Netherlands or the United Kingdom, as they are major producers of chocolate. Cocoa beans are being increasingly transported in bulk quantities, which significantly reduces.
Applications of cocoa
The most common use of cocoa beans is of course to produce chocolate. The beans are grounded into powder and the oil is extracted and is converted into cocoa butter. These two products can be mixed with a number of ingredients: milk, sugar, flour and eggs in order to create chocolate bars, cakes, chocolate milk and numerous types of sweets and candy.
However, cocoa can be used in a number of other products besides food. Cocoa butter is very useful in the production of pharmaceuticals. Its unique character where the butter remains solid at room temperature and melts at body temperature, makes it ideal for this purpose. It functions as a basis for suppositories and lotions and is proven to be highly effective as a moisturizer.
Chocolate is generally considered to have a negative effect on our health. However, recent studies have proven that a limited daily consumption of dark chocolate can enhance the overall health of a person. Chocolate contains a high level of flavonoids, which function as antioxidants. These help minimize the chance on heart diseases and help lower blood pressure and cholesterol. Furthermore it has become clear that only a third of the fats in dark chocolate is a so-called bad fat. All the other fats are a natural fats which do not have negative effects on your health.
The trading takes place on two exchanges: New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) in London. The prices in London are based on cocoa from Africa, while New York bases its prices on the South-Asian market. The prices on the ICE function as a benchmark for global price creation.
Weather conditions are always a critical factor in agricultural commodities and cocoa is no exception. The production requires very specific weather conditions, both in temperature and rainfall. The global warming can have far-reaching consequences for cocoa farmers and the overall supply of cocoa.
Political unrest can play a significant role in the price stability of cocoa. Major producing countries are Cote d’Ivoire, Ghana and Indonesia, where political unrest is not uncommon. This uncertainty about developing political changes and unrest can have a major impact on the prices and also the supply. A specific political factor is child labor, which was found to be common on the farms in Africa. With increased inspections on eliminating child labor and establishing proper wages, the productions costs for cocoa will increase, which will consequently influence the eventual price of cocoa.
The living standards in countries such as China and India are steadily increasing, resulting in a rising demand for products that were previously considered a luxury such as chocolate. These enormous populations require a huge increase in production in order to meet the demand for chocolate.
There is a small number of leading companies active in the chocolate producing industry. Due to this limited number of companies, a change in demand from one of these companies can have a great impact on the prices.
NYMEX Cocoa Futures Contract
A Futures Contract on the New York Mercantile Exchange (NYMEX) has the following specifications:
|Contract Size||10 metric tons|
|Price Quotation||U.S. Dollars and Cents per ton|
|Contract Months||Trading is conducted in the March, May, July, September, and December cycle for the next 23 months|
|Tick Size||$1.00 per ton|
ICE Cocoa Futures Contract
A Cocoa Futures Contract on the Intercontinental Exchange (ICE) has the following specifications:
|Contract Size||10 metric tons|
|Price Quotation||Dollars per metric tons|
|Contract Months||March, May, July, September, December|
|Tick Size||$1.00/metric ton, equivalent to $10.00 per contract.|