ETF Investors' Taste For Cocoa Hard to Satisfy
No U.S. ETFs focus exclusively on cocoa futures, which have more than tripled over the past year.
With many investors focused on rallies in crytpo and artificial intelligence stocks, they may not have noticed the surging price for beans likely harvested on a West African farm before being processed and arriving at their grocers wrapped in foil.
Cocoa, one of the so-called soft commodities, hit $10,000 per metric ton for the first time last week, more than three times their price as of one year ago, as weather and delivery disruptions cut supplies amid persistent high demand. Cocoa futures for May delivery dipped slightly to $9,766 as of Friday midday.
So can exchange-traded fund investors get exposure to cocoa futures? At the moment, maybe not.
No U.S. ETFs give investors pure play exposure to the cocoa market, according to Jake Hanley, managing director at Teucrium ETFs, a commodities-focused ETF issuer. Hanley spoke with etf.com analyst Sumit Roy for a video that discussed rising cocoa prices.
While broad commodity ETFs have been boosted by cocoa, their returns are diluted by the funds' other component commodities.
The West African region, which is responsible for producing 70% of the world’s cocoa, has been hit with weather disruptions and disease. According to a report last year from the International Cocoa Organization, the spread of black pod disease as well as drought in the Ivory Coast and Ghana have limited production of the commodity.
While weather and disease are perennial supply factors for all agricultural commodities, cocoa's demand stays strong thanks to a growing craving for chocolate that's fed by rising incomes which create new markets for more expensive sweets.
“Demand remains pretty steady. I mean, we're talking about cocoa, right? So, we're talking about chocolate demand—I don't see it going away,” Hanley said.
Cocoa ETFs
Teucrium’s agricultural commodities fund, the $5 million Teucrium AiLA Long-Short Agriculture Strategy ETF (OAIA), has more than 5% of its assets in cocoa futures at the time of last week's interviews. The fund has gained 3.9% year to date, according to etf.com. The Invesco DB Agriculture Fund (DBA) tracks the DBIQ Diversified Agriculture Index and weights cocoa futures at 12% of its portfolio, making it the fund’s fourth largest holding. DBA has fared better and is up 19% year to date, according to etf.com data.
A pair of exchange traded products that exclusively invested in cocoa have both closed, according to Roy. Barclay's iPath Bloomberg Cocoa Subindex Total Return ETN (NIB) shuttered last June and the iPath Pure Beta Cocoa ETN (CHOC), liquidated in 2018, according to Yahoo Finance.
Despite the fact that other agricultural commodities, such as wheat, corn, and soy have been trading down over the past year, Hanley thinks that these markets too could be poised to see gains.
“As you see with cocoa markets, when there is a supply disruption, prices can move quickly to the upside. And so diversified strategies, giving you exposure to the commodity sector, we think makes sense in these markets,” he said.
Contact Lucy Brewster at [email protected].
