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Abstract
There have been wide swings in cocoa prices, and periods of extremely high and low prices. Attempts have been made through the International Cocoa Agreement to stabilize cocoa prices, but its efforts have been unsuccessful. The purpose of this research is to analyze cocoa prices from 1961-2000 and find alternative ways to protect producers from unstable cocoa prices. Several procedures were used in this analysis. First, attention is given to previous research on the causal factors of price volatility in the cocoa market and the history of the structural changes that took place in the cocoa market from the 1960s to 2000. Next, a fundamental analysis of the cocoa market was done to determine the relationship between end-of-year cocoa stocks and prices. A seasonal analysis also was done to determine if a seasonal pattern existed for cocoa prices and to determine which month had the highest seasonal index. Lastly, alternative price risk management strategies, such as routine hedging, strategic rollover hedging, and cash sales at harvest were analyzed to determine if any of the strategies were successful at stabilizing routinely volatile cocoa prices. The results of this research indicate that despite the effectiveness of strategic rollover hedging to improve average net prices for commodities such as corn and soybeans, the outcome for cocoa was unsuccessful. Using strategic rollover hedging from 1971-2000, resulted in a loss of $304,825.72. This included $50 per round turn for brokerage fees, without the consideration of margin calls. However, implementing the routine hedging strategy every year in the month with the highest seasonal index generated net revenues of $15,916.34 from 1971-2000.