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.

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.

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.

Cocoa futures look bright for the next four years.

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

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.

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