In repeated up and down the international values of cocoaof juice orange But also the meat for the last two months, brutally hurting our consumers and our country.
The price of orange juice shows how volatile the market reactions to agricultural products can be. The situation is similar to coffee and cocoa. Other goods, such as metals such as gold, are only extremely vulnerable to such instability, according to Bloomberg data.
The average volatility of gold price over the past five years was only half of that of coffee. And only 1/3 as high as that of cocoa and orange juice.
The latter have even increased to instability over the last year. Cocoa is now four times more volatile than gold, and orange juice almost five times more.
The price fluctuations were particularly impressive in the spring of last year. In early May, the price of cocoa was more than 10% in three days of negotiation. Since the start of records more than 60 years ago, comparable movements have only occurred three times in the past.
Even experts such as Rabobank analyst Oran Van Dort have been surprised by market turmoil. He monitors cocoa and café shopping daily and sees a variety of reasons for their instability. According to a Handelsblatt report, the reasons for instability are as follows:
1. Low liquidity
According to Van Dort, one of the most important factors is the low liquidity of these markets. This means that a single large position can significantly affect prices.
On the Stock Exchange, liquidity refers to how quickly and easily it can be purchased or sold a debt without a significant change in price. High volume of trading ensures high liquidity and therefore fixed pricing, while low volume limits marketability and favors price fluctuations.
Intense fluctuations from last year have led to a further reduction in liquidity, as this has increased the cost of risk offenses for market participants, Van Dort explains. Traders who offset cocoa orders on the future fulfillment stock market must also submit more Margin Calls due to high volatility.
In the transactions of future fulfillment, the seller agrees to deliver a certain amount of a commodity to the buyer to a pre -agreed date and price. And the buyer agrees to pick up the goods.
The more the prices deviate from the pre -agreed price, the higher the risk of retiring a part of the transaction. Therefore, the amount of deposit for compensation against risk of default is also increased. However, if the buyer or seller can no longer provide the required warranty, the transaction is liquid.
To buy cocoa, this meant that open seats continued to decline, as well as The liquidity, and price fluctuations increased. Occasionally, open positions have been at their lowest level in at least 14 years, Van Dort explained. “This is the ideal breeding ground for speculators,” he explains. And they would further exacerbate price fluctuations as they enter and exit seats faster than, for example, natural cocoa or chocolate traders.
2. Weak state of information
Although agricultural products are, on average, significantly more vulnerable to fluctuations, there are clear differences within the section. Soy prices, for example, are relatively stable and even showed somewhat smaller fluctuations than gold price last year.
This is related to the availability of transparent and up -to -date information, Van Dort explains. For soy, for example, the US Department of Agriculture publishes monthly offer reports. For coffee and especially cocoa, there is significantly fewer data.
“This makes it easier for market participants to direct the narrative in a direction that is favorable to them,” says the Rabobank analyst. This happened with cocoa last year, when the climate suddenly became very positive for prices.
3. Slow production reaction
Another reason for intense fluctuations in agricultural products is that production can only react to demand changes only with significant delay. Cocoa and coffee require an extent and a certain amount of time for ripening and harvesting. ‘Production tumors’ cannot be increased without delay. There is a specific term for this in animal trade: the “cycle of pigs”.
Lean pork is also one of the most unstable agricultural products. And in the last three months, it has been three times more unstable than gold, and its price has been even more than coffee.
The slowest reaction to the offer is more intense for coffee and especially for cocoa. “If they are planted cocoa now due to rising prices, it will take four years before they produce a significant harvest,” says Van Dort.
4. Extreme weather conditions with consequences
In the opinion of Niteesh Shah, head of goods research and macroeconomic research in Wisdomtree assets management company, a specific factor is responsible for strong fluctuations: weather dependence. “It has to rain at the right time, the sun must shine at the right time and a storm can already affect harvesting.” And this reduces the offer.
This has happened very often in recent years. Extreme weather conditions such as frost or drought, as well as plant diseases, have led to weak harvests, for example in the coffee market. It was not uncommon in the past to have a year of weak harvesting that is related to weather conditions.
But this is a new trend: For five consecutive years, coffee supply has declined under demand because producers had to face more extreme weather conditions.
Agricultural markets are more vulnerable to production in production, Van Dort warns. The geographical concentration is a further aggravating factor for coffee and cocoa. Brazil represents up to 40% of world coffee production. Two countries – Ghana and Ctlie Coast – represent more than half of world cocoa production.
5. Investors’ dear reaction
Due to its volatility and unpredictable nature, the market for agricultural basic products therefore has limited “use” for private investors. Those who invest at the right time can certainly get high yields – cocoa, for example, increased by more than 178% in 2024, even more than Bitcoin.
But these performance opportunities are accompanied by high risks. Investors should know this and invest only the capital they can allocate.
Private investors can invest, for example, through stock markets (ETC). The ETCs, abbreviation of “Exchange Traded Commodities”, are secured certificates in future fulfillment contracts. Reproduce the performance of one or more goods as faithfully as possible.
For example, Wisdomtree offers ETC for coffee, cocoa and a basket of agricultural products. However, there is no comparable product for orange juice.