In the volatile world of commodity
investing, they're called "softs."
But we know them as commodities like
coffee, sugar, orange juice and cocoa.
And when it comes to investing,
the latter represents an excellent
opportunity right now.
Cocoa grows predominantly in the
West African nations of the Ivory Coast
and Ghana, which churn out 40%
and 20% of the world's production
respectively.
Because of the particular growing
conditions for soft commodities,
prices tend to fluctuate due
to weather issues, political conflicts,
credit shortages and the
inability to respond to rising prices.
When any of those happen – as
they frequently do, companies have
to cope by charging more.
And that means investors
can do quite well…
A Sour Mix
Right now, things aren't so
sweet for chocolate lovers.
While analysts expect cocoa
demand to recover quickly from
the global economic downturn – growing
anywhere between 1.5% and 3%
between 2009 and 2010 – the market
cannot sustain that kind of pressure.
The increase in cocoa-craving
consumers will create a
growing market deficit for the
fourth year in a row, rising from
62,000 metric tons in 2008 to
73,000 this year according to
the International Cocoa Organization.
And with the industry forecasting
that consumption will outpace
supply yet again next year,
the cocoa market could very well
enter its worst period
of shortage in 40 years.
To make it worse, El Nino weather
patterns could affect production
in Indonesia, the world's third-largest
producer, and Ecuador,
the seventh-largest.
Meanwhile, in Nigeria – the
fourth-largest producer – political
problems lowered exports by
22% earlier this year and could
affect the crop at any point again.
But even with all of that, the real
reason cocoa prices should
soar is down to the Ivory Coast…
The Ivory Coast's Lagging Production
Thanks to too much rain and the
Black Pod Disease – a fungal
infection that can ruin
entire crops – the Ivory Coast
reported a poor cocoa harvest
this year. And even if it gets
perfectly favorable weather
in the months ahead, the country
could deliver a still smaller crop
due to too many aging trees.
And it's not simply a question
of planting new trees. That endeavor
requires time and money,
the latter of which small farmers
in that region – already among
the world's most heavily
taxed growers – simply don't have.
Under that kind of stress, Ivory Coast
output could decline as much as
15% in 2010 – some
100,000 metric tons.
And that's on top of a
200,000 metric ton drop in
the 2008-2009 season.
This has cocoa buyers such
as Cadbury (NYSE: CBY) and
Nestle (OTC: NSRGY) worried.
Both firms have launched programs
aimed at replanting trees,
in a desperate effort to avoid
a long-term decline in output.
The problem is, no one is certain
whether those efforts will succeed,
especially with the region's largest
cocoa workers' union threatening
to strike if its demands for
government subsidies and
farmers' co-operatives aren't met.
And finally, we have the fact that
many chocolate manufacturers
have yet to cover their needs
for next year…
Enrich Your Portfolio
Not good news for chocoholics.
But if you're an investor, it could be
a sweet ride, as prices move
to their highest levels
since February 1980.
With the problems in the Ivory Coast
looking like they could take
a while to resolve, investors still
have plenty of time to get
on board this upward trend
in cocoa prices.
Experienced commodities traders
could take advantage through
the cocoa futures or
futures options market directly.
But a simpler way is to invest
through an exchange-traded
note (ETN).
Trading on the New York Stock
Exchange just like a stock,
the unleveraged Dow Jones-UBS
Cocoa Subindex Total
Return ETN (NYSE: NIB) is
based on cocoa futures and will
mirror the performance
of cocoa, minus the fees.
Good investing,
Tony Daltorio
P.S. For more commodities
recommendations, take a look at
the Xcelerated Profits Report.
The advisory issues picks
on gold, natural gas, sugar
and other everyday commodities
that could prove extremely
lucrative for savvy investors.
For more information,
Related Investment U Articles:
- Three Ways to "Sweeten"
- Your Portfolio
- These Three Commodities
- Are Set to Move…
- Are You Ready to Profit?
- The World of Commodities:
- The Future Of The Gold,
- Silver, Corn & Sugar Markets
--
J-L K
Sent from Kigali, Rwanda
Posts
No comments:
Post a Comment