Cocoa Futures | TigerDroppings.com
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MStant1
LSU Fan
New York, NY and Houston, TX
Member since Sep 2010
4206 posts

Cocoa Futures

Anybody on here long on cocoa futures? Been considering doing this and possibly shorting cocoa processors such as Archer Daniels Midland. Wanted to see if any of the money board wizards had an opinion on this.


Tmacelroy12
LSU Fan
Houston
Member since Aug 2012
5489 posts

re: Cocoa Futures
I don't think shorting would be a good idea because prices will increase due to the colder months and holiday seasons.This is all in speculation though.


MStant1
LSU Fan
New York, NY and Houston, TX
Member since Sep 2010
4206 posts

re: Cocoa Futures
My plan is more of a long term goal in that I'm betting that in the next 5 years there will be a chocolate shortage. The cost of chocolate would go up and the cost of doing business for ADM would increase substantially. In other words I would go long on chocolate futures betting the cost will increase due to the cocoa shortage and short the chocolate companies for the same reasons.


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LSU0358
LSU Fan
Member since Jan 2005
5631 posts

re: Cocoa Futures
I trade commodities pretty often (gold, platinum, oil, wheat, and corn) and cocoa futures scare me with the low volume and being a "food" commodity.

Having said that, I'm bullish on all of the commodities and cocoa's long term charts look pretty good. The small volume would mean a wide stop, so for the March contract that is at 2,476 as of 1:20 PM my stop would be in the 2,420 range.

Looks like if cocoa makes it above 2,531 in the March contract it should hit 2,700 pretty quickly.

As far as hedging with the ADM short, my thought would be just buy less futures contracts. I've tried the long gold futures and short miners deal and it turns out to be more trouble than it's worth.

This post was edited on 11/21 at 1:26 pm


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LSURussian
LSU Fan
Member since Feb 2005
85147 posts

re: Cocoa Futures
Racist!!


OFWHAP
LSU Fan
Member since Sep 2007
5416 posts

re: Cocoa Futures
You'll want to find out what ADM and its competitors do in terms of hedging commodities. You would also want to figure out how much power ADM has in passing on price increases to its customers. Since these companies are in the commodities industry, I have a feeling that they are trying to avoid being blindsided by a rise in cocoa prices. Do you forsee a supply shock that nobody else knows about in cocoa or are you reading the long-term trend in prices?


MStant1
LSU Fan
New York, NY and Houston, TX
Member since Sep 2010
4206 posts

re: Cocoa Futures
I don't have any unique information or analysis. Topic came up at work one day and I've found a few articles since. Here's what I'm basing my assumptions on:

LINK

I've been just shooting this idea off people since.


OFWHAP
LSU Fan
Member since Sep 2007
5416 posts

re: Cocoa Futures
I don't see a date for the article itself, but I see comments dating back to February 13, 2012, which is ancient history as far as we're concerned. In addition this is a risky, directional trade. Looking at Cocoa Futures specs on the CME Group's website, it would require a minimum margin account of $1,870, with each tick representing a $10 movement. In addition you'll have to put down another margin account for your short position of ADM shares. If you're really knowledgeable about cocoa futures and ADM's hedging practices, then maybe you can try out this trade. However with these margin accounts and short-sales, you can go bust on your trade even though you're correct. Timing is a big deal here.


OldHickory
LSU Fan
New Orleans
Member since Apr 2012
2985 posts
Online

re: Cocoa Futures
Cocoa futures look bright for the next four years.


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MStant1
LSU Fan
New York, NY and Houston, TX
Member since Sep 2010
4206 posts

re: Cocoa Futures
Yeah, the shortage I'm reading about if it happens at all I don't believe is expected to happen until 5-7 years from now. I've seen the date 2020 thrown around in some of my short research. It would be a hell of a gamble if I did decide to do it.

Although it may not be. Even if said shortage never occurs the demand seems to be growing year for year which will increase the price regardless. My bet is more that I'm expecting a huge jump in prices due to shortage rather than demand. Dunno I think I'm gonna research some more before I do something stupid.


OFWHAP
LSU Fan
Member since Sep 2007
5416 posts

re: Cocoa Futures
In the little research I did in answering your questions, I'm not even sure you can buy cocoa futures that far out yet, so you have time to figure things out before jumping into this. Good luck


MStant1
LSU Fan
New York, NY and Houston, TX
Member since Sep 2010
4206 posts

re: Cocoa Futures
Thanks! Appreciate the help!


bovine1
LSU Fan
Walnut Ridge,AR via Tallulah,LA
Member since Dec 2004
845 posts

re: Cocoa Futures
Have you considered CHOC. You wouldn't have to worry about margin. Less bang for the buck but more long term staying power. Just a thought.


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DriveByBBQ
USA Fan
Willard's Garage
Member since Jan 2011
4608 posts

re: Cocoa Futures
'Future Timeline' predicts 2031

Although 10-15$ a bar sounds cheap when adjusted for inflation...




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greenhead11
LSU Fan
Member since Feb 2012
625 posts

re: Cocoa Futures
My favorite investing commodity: Wine. No cap gains tax and if else fails- you still got a bottle of wine.

I like many commodities long term- I don't care where they go tomorrow so my opinion may not be of any substance if your trading futures.. Some of the commodities middle men such as ADM, Noble (HK), etc have had their margins squeezed lately but I think they stand to benefit from the volume of sales that they do and the overwhelming increase in demand for chocolate, sugar, corn etc... Honestly while the relationship between raw goods price and ADM's share price should in theory have an inverse correlation, I'd take leg one of the trade and NOT short ADM. Too many people in emerging world need their goods. Plus you've got ADM steadily raising their dividend and shorting a dividend paying stock that has yield support has limited profit potential IMO

This post was edited on 11/27 at 1:20 am


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LSU0358
LSU Fan
Member since Jan 2005
5631 posts

re: Cocoa Futures
quote:

I've seen the date 2020 thrown around in some of my short research. It would be a hell of a gamble if I did decide to do it.


I wouldn't recommend trading futures out that far. There are several things that can come into play that could effect the price of cocoa, even in a supply crunch. Say the US dollar doubles in value relative to other currencies, all the sudden your cocoa value went down 50%.

Also, don't think you can buy contracts that far out in anything except maybe crude oil and natural gas.


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