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Cocoa Plant Biology for Traders




From 2023 to 2024 Cocoa dramatically rallied in price, to an unprecedented $12000 per MT, more than double the previous unchallenged 1977 high.  Cocoa as a market is notoriously volatile, and it can chew up and spit out amateur traders. 

Many modern electronic traders view this commodity merely as a financial instrument, while consumers consider it a food product, but for professionals and industry insiders, cocoa is first and foremost, a plant. 



Cocoa holds a significant place in global commodity markets, and often gains notoriety every few years with a new rise and fall. The movements have drawn attention from both traders and institutions, who look for ways to better understand how the price will move in the future. To understand the market events, though, we must first understand the cocoa plant. We need to understand what cocoa is.


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Overview 


The long-term price of cocoa is ultimately driven by supply and demand, and since cocoa is an agricultural commodity (a living plant), the supply varies greatly based on biological and climatic considerations.  


By understanding the nature of the cocoa plant, we can learn how to predict crop yields, which in turn drives long-term market prices. Understanding these points is not just a intellectual exercise but a crucial aspect of commodity analysis, where the rhythms of nature intertwine with the dynamics of global trade.



When analyzing agricultural commodities, biological and climatic considerations are the bedrock of its fundamental analysis. This is especially true for cocoa, whose optimal growth conditions directly impact its yield and quality.  


Disease knowledge, for instance, can forecast potential supply disruptions, while a deep understanding of the growth cycle can aid in market timing. The biology of the cocoa plant doesn't just determine the quantity of the beans produced but also their quality, which is also paramount in the world of fine chocolate and food products in general. 


In this article, we will cover the essentials of the biological nature of cocoa, from the plant’s environmental needs to its biological life cycle and cultivation process. 


Cocoa Plant - Main Requirements 


Cocoa is grown in tropical forests around the world and is what we might call, a very “demanding” plant.   

It requires just the right specific weather conditions to flourish, otherwise it will either not grow, or the yields might be heavily reduced. The native land of Cocoa is in the tropical jungles of the Americas and its ideal climate reflects this region. 



There are four climactic requirements for cocoa to flourish:    


  • Temperature: Hot, tropical weather - 21-32°C (70-90°F).  

  • Rainfall: Heavy rainfall and humid climate with a wet season and dry season - between 1,500-2,000 mm per year.  

  • Soil: grows best in deep, well-drained, slightly acidic soils consistent with tropical forests (pH 5.5-7.0). 

 

Additionally, some of these climactic requirements are even more strict during certain periods of the cocoa tree development, which further limits the places and climates in which it might grow. This also forces farmers to adopt artificial methods to support the tree's growth, some of which we will explore further down. 


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Life Cycle 


Now that we understand what the cocoa plant needs, we can talk about its life cycle, from the sowing process to its growing, and finally reaching reproductive maturity. 

It usually takes four to five years for a cocoa plant to mature and start producing pods. During this time, the young plants are particularly vulnerable and require careful nurturing, which also means that the farmers can’t just leave the seeds in the ground and wait.  



To better support the development, seeds are typically germinated in nurseries, where they are planted in polybags filled with a mixture of soil, sand, and organic matter.  


Once the seedlings are robust enough, usually after about six months, they are transplanted from the nursery to the field. This transition to the field marks the beginning of the plant's reproductive development. 


After transplanting, seedlings must adjust to the new environmental conditions, such as soil type, moisture levels, and temperature variations.  


Once the move is complete, if all goes well, the plant focuses on flowering and pod formation. Regular pruning and mulching help to maintain healthy growth, and shade plants are often used to shield the young cocoa trees from excessive sunlight and wind, creating a microenvironment that mimics their native rainforest habitat. 


Flowering 


When the cocoa plant is mature enough to bear fruit after about 4-5 years, it will start the reproductive cycle for the first time. This process will begin with the aptly named flowering phase, when the tree will grow its reproductive structures, the flowers. 

Cocoa trees are cauliflorous, meaning their blossoms grow directly from the trunk and large branches, emerging in clusters and growing up to 2 centimeters in diameter. 



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Flower development takes approximately 30 days, progressing through 12 micro-stages from meristem growth to the fully developed flower. They tend to open at night over a 12-hour period, synchronized among groups of other mature blooms.  


Each tree can produce up to 10,000 flowers annually, but about 10% are successfully pollinated due to their intricate structure and the need for specific pollinators, such as biting midges from the Ceratopogonidae family. Of those, only about 2% will develop into a pod, creating an optimal environment for these pollinators, such as maintaining a damp, shaded, and biodiverse habitat, is also an essential part of cocoa cultivation. In some cases, hand pollination may be employed to ensure a sufficient rate of fruit development. 


In this time, the flowers will needs high amounts of water, meaning that it usually aligns with rainy seasons of the country in which the cocoa is being grown. 


Pod Development 


Following successful pollination during the flowering phase, the cocoa plant enters the pod development phase.  



This is analogous to pregnancy and it can be considered the most important part of the life cycle in terms of the quality of the cocoa beans, since it is when critical biochemical changes such as lipid (fat) accumulation and moisture content reduction take place. 


The pod is a very unique fruit. They are large, thick-skinned, and have a rough texture with distinct ridges, and their color can range from green to yellow, orange, red, or purple, changing as they ripen. 


Cocoa pods begin to form from fertilized flowers and undergo a significant growth period. In this time, several factors influence the growth and health of the pods. Adequate nutrient supply, optimal environmental conditions (such as temperature and humidity), and effective disease management are vital. 


Once again, the survival rates of cocoa are very low, with more than 75% of the pods dying the first weeks, and even less surviving into full maturity.

 

The pod development phase is also the largest part of the cocoa plant's reproductive cycle, with the growth of the fruits potentially taking more than six months during the main harvest. In it, the plant needs more moderate rainfall and stable environmental conditions. 


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Harvest 


At last, the cocoa pod is developed enough to be harvested. This part of the process typically occurs during the dry season, which helps in reducing the moisture content of the beans and facilitates the drying process. It provides optimal conditions for harvesting, fermenting, and drying cocoa beans, ensuring they achieve the desired quality and flavor. 


Although the phase takes about a month for all the fruits on a single tree to be ready for harvesting, cocoa plants reach maturity at different times. As a result, the overall harvest period for a plantation extends between three and six months. 

During the harvest, cocoa pods are manually picked using sharp knives or machetes. Each pod contains about 40 beans, which weigh approximately one gram each.


On average, a single cocoa tree produces around 30 pods annually. The harvesting process requires precision to avoid damaging the tree; the peduncle, or pod stem, must be cut cleanly to ensure the tree remains healthy and can continue producing in subsequent seasons. 





Post-harvest, the pods are split open to extract the beans, which then undergo a critical fermentation process that lasts from five to seven days. Fermentation is essential for developing the beans' flavor, transforming their bitter taste into the rich, complex profiles we associate with chocolate. Following fermentation, the beans are dried for five to ten days, reducing their moisture content and preparing them for storage and transport.


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Climate 

The precise conditions needed for cocoa cultivation mean that it is largely confined to regions close to the equator, where the climate can consistently meet the plant’s needs. However, this geographic restriction also introduces variability, as different origin countries possess ideal circumstances at different times of the year.  



Climactic requirements (rain, temp, etc) themselves are not static and change depending on the current reproductive phase of the plant, creating a seasonal pattern that aligns with the climate of each origin.

  

Origin Countries 


Cocoa has come a long way from its original home, in the tropical regions of Central and South America, and now occupies an important role in the economy of many countries spread across different continents. 



Currently, the top cocoa-producing origins are in Africa, Latin America, and Asia. These regions are uniquely positioned to fulfill the necessary climatic requirements.  


Each region has developed its own rhythm for cocoa cultivation, with the main harvest season generally stretching from October to March in most countries, although it can be smaller in specific cases, such as Brazil. Some countries will also have a secondary, smaller harvest, that stretches from April to September.  


Cocoa’s attunement with nature's cycles allows for a steady supply of cocoa beans, though it also means that any climatic disruptions can have significant repercussions on global markets. 


Ivory Coast is the largest producer of cocoa in the world, contributing about 40% of the global cocoa supply, while Ghana occupies the second position at approximately 20%. In Latin America, the major producer is Ecuador, with Brazil following shortly behind. In Asia, Indonesia leads cocoa production. 


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Challenges 


The biggest factor in price volatility for the cocoa market comes from supply disruptions and this usually occurs from weather impacts. The dramatic 2023 bull market was caused in large part by drought and disease in some of the world’s largest producing origins in West Africa. This highlights the essential importance for an analyst to understand the biology of cocoa and the risks that the crop can face. 


Even with careful preparations, cocoa plants face numerous challenges. Too much rain can lead to fungal diseases such as black pod and witches' broom, which can devastate entire crops. Conversely, insufficient rainfall can cause drought stress, stunting growth and reducing yields. Excessive heat, particularly in young plants, can result in sunburn and stress, further complicating the delicate balance required for optimal growth. 

 

In addition, cocoa plants are highly susceptible to various kinds of pests. Insects like mirids (also known as capsids) and cocoa pod borers can cause significant damage to both the foliage and the cocoa pods. Mirids, for instance, feed on the sap of the plant, causing lesions that can lead to secondary infections. Cocoa pod borers, on the other hand, can lead to the direct loss of cocoa beans. 



Lastly, poor soil quality can be one of the greatest challenges to any cocoa farm. It can lead to nutrient deficiencies, weakening the plants and making them more susceptible to other problems, such as the diseases and pests mentioned above. Cocoa plants require a well-balanced supply of nutrients, particularly nitrogen, phosphorus, and potassium, to thrive, and the lack of any of them can be lethal to the trees. 

 

Conclusion 


Understanding the biology of cocoa is a vital component of effective commodity analysis. The cocoa market is a popular market to trade because it is rich with volatility and opportunities. We have seen how weather conditions can create dramatic risks and opportunities in the cocoa market due to their impact on global production . 


Even without considering extreme weather events, analysts and traders need to understand how meteorology affects the survival rates of pods and increases the risk of disease and pests.  This is a key component of any supply and demand analysis. 


Like many plants, the nature of cocoa adds a level of variability to the market that traders must understand if they wish to thrive in this market. This is not a path that can be easily completed, or really ever completed; instead it is the path of the fundamentalist soft commodity trader, who must be perpetually a student of agricultural commodities, and the plants that form the foundation. 


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