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Cocoa Futures
Posted by MStant1 on 11/21/12 at 10:20 am00
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.
re: Cocoa FuturesPosted by Tmacelroy12 on 11/21/12 at 10:45 am to MStant1
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.
re: Cocoa FuturesPosted by MStant1 on 11/21/12 at 11:47 am to Tmacelroy12
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.
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.
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
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?
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.
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re: Cocoa FuturesPosted by OldHickory on 11/21/12 at 8:36 pm to LSURussian
Cocoa futures look bright for the next four years.
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.
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.
re: Cocoa FuturesPosted by greenhead11 on 11/27/12 at 1:18 am to MStant1
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
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
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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