Today’s Report Is Actually Quite Scary…
No doubt about it, the cocoa market has been all over the map in recent trading. As you may know, the commodity has been in a strong uptrend this year as investors priced in surging demand and stagnant global supply growth.
But once prices stalled near $3,200 a ton in August, investors decided to take some profits off the table. As a result, cocoa collapsed to $3,050 a ton by early September.
But then something weird happened…
Cocoa did an about face and exploded above $3,300.
Take a look…
What caused that massive spike?
Ebola.
That’s right, the deadly virus that’s ravaging Western Africa is creating a panic in the cocoa market.
Let me explain…
As you’ve likely heard, the West African countries of Liberia and Sierra Leone are ground zero for the Ebola outbreak. Several thousand people have died from the incredibly lethal virus in this poverty stricken country.
But even more concerning is the fact the World Health Organization (WHO) forecasts the number of cases could rise somewhere between 550,000 and 1 million by January 2015.
I don’t know about you, but I think that bit of information is terrifying.
What does it have to do with cocoa?
Liberia shares a border with the Ivory Coast, which is the world’s top grower of cocoa beans. Given the WHO’s ghastly projections, investors are concerned the virus will spread into the Ivory Coast, decreasing exports dramatically- if not completely.
Of course, the border between Liberia and the Ivory Coast has already been shut down as officials try to contain the outbreak. The problem is the border is hardly what you would call secure.
Once there are confirmed Ebola cases in the Ivory Coast, it will create pandemonium in the cocoa market…
You see, cocoa is typically grown on small plots by independent farmers. Once harvested, the farmers sell their cocoa crop to middlemen traveling from farm to farm. Once they have a load, these middlemen take the cocoa to the coast for export.
But if Ebola pops up, this export process could grind to a halt.
How high could cocoa run if the unthinkable actually happens?
Some analysts say the commodity could surpass the early 2011 high of $3,700 if the virus spreads to the Ivory Coast. And if cocoa exports suffer dramatically, we could see $4,000 or more.
How do you capitalize on a potential cocoa moonshot?
One of the easiest ways is through the iPath DJ-UBS Cocoa ETN (NIB). The ETN tracks the daily movement of cocoa futures contracts.
But keep one thing in mind before you put any of your hard earned money in NIB.
The cocoa market has quickly gone from trading on fundamentals to trading on pure speculation and fear.
As a result, don’t be surprised to see wild price swings in NIB as this horrible Ebola outbreak persists.
Until Next Time,
Justin Bennett
***Editor’s Note*** Subscribers to my flagship commodity ETF investing service, the Commodity ETF Alert, purchased NIB for their portfolios in March 2014. Of course, they’re already sitting on hefty profits and may be inclined to sell into looming cocoa price spikes.
If you’d like to discover how to buy commodities, without the need for a risky futures account, click here.
Category: Commodities
