Analyst predicts a sweet future for cocoa
Commodities expert Andy Hecht outlines how Brexit and the UK general election could affect the price
An experienced commodities analyst has given his opinion on the future of cocoa and how the upcoming British general election and subsequent Brexit outcome will affect the commodity’s price.
Andy Hecht describes that while “the US dollar is the world's reserve currency and cocoa futures on the Intercontinental Exchange use the dollar as the pricing mechanism, London has a long history as the hub of international cocoa trading. Many of the physical supply contracts use the British pound as a pricing mechanism. A strong pound tends to support the price of cocoa beans, while a weaker pound causes the price to decline.”
In the aftermath of the Brexit referendum result on June 23, 2016, the pound suffered its largest one-day loss in history, slumping to a 31-year low. Conversely the price of cocoa surged. While the price of cocoa is not completely correlated to sterling and is affected by worldwide factors, nonetheless in the subsequent weeks it reached its highest point in nine years at just over $3,200 per ton.
Although Hecht recognises the possible danger of a “hard Brexit” on the pound and the uncertainty posed by a general election, he welcomes the potential greater certainty a parliamentary majority could return. He said, “I am bullish on the price of cocoa,” adding “the potential for a recovery in the pound versus the US dollar would only add to the upside potential for the price of the soft commodity.”
Furthermore, he observed, “Demand for chocolate confectionery products continues to be a one-way street higher, which is a function of population and wealth growth around the world. A surcharge on over 60 per cent of the world's supplies is another supportive factor.”
Last week cocoa hit its highest point in 52 weeks, standing at $2,071. If Hecht is anything to go by, it could gain even further.
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