Cocoa Report Focus #4 – Certified Stocks
- Diego Miranda
- May 30
- 5 min read
Every day I send out a #certifiedstocks #report to my free and premium subscribers because it is one of the most relevant and useful benchmarks for the #cocoa industry to “calibrate” to. Yet one of the most common questions that we receive is for clarification on the #certstocks.
“Why should we care about the certified stocks?”
To be fair, there are several important and not well understood facets to this report. In this article we will outline what this report shows and how to interpret the data, and we will close with an update on what is happening in the cert stocks right now.
The Role of Certified Inventory and Futures
When we trade #cocoafutures, or any #commodityfutures, there is an expectation that the #futures prices reflect and correlate with the price of the physical #commodity. If this correlation did not exist, the futures market would be worthless as a tool to hedge, and the commercials would cease their trade in it.
The Certified Inventories (“Cert Stocks”) are the reason that this correlation exists. The futures market is essentially a standardized forward contract. In other words, each future is a promise to deliver or accept delivery of cocoa in exchange for USD, priced per metric ton (MT).
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In a normal bilateral forward contract between two parties, the quality and grade of cocoa is carefully articulated in the contract and confirmed with samples ahead of time. This process of grading, sampling, and delivery often takes weeks and months and is not possible in the fast electronic trading of the futures market.
To facilitate rapid, confident transactions, the futures contract only accepts standardized lots of cocoa that have been inspected, graded, and “certified” by the exchange. These lots of cocoa are “certified inventory.”
The cocoa grading process focuses heavily on bean count (number of beans per 100 grams), fermentation quality, moisture levels, bean size uniformity, and physical defect evaluations. Unlike commodities such as coffee, where sensory taste evaluations are an important aspect, cocoa certification emphasizes measurable physical attributes to ensure standardization and suitability for chocolate production.
How Certs Influence the Futures Market The certified inventory ensures that the correlation between physical cocoa prices and futures prices is not a theoretical exercise, but rather a direct match during the notice period.
Every futures contract expires during its respective delivery month, and just before expiry is the “notice period.” During Notice Period any trader still holding a long future can be “assigned” an actual lot of certified cocoa and will be liable for the full price of the futures contract (10 metric tons times the futures price). Any short holder of futures can “tender” a lot of certified inventory in lieu of closing their short position and will be due the full price of the contract.
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The futures price will converge with the physical price of cocoa during this period as there is an arbitrage opportunity here for savvy traders. If the price of physical cocoa is underpriced vs. the futures contract, traders will buy the physical cocoa and sell the futures. This brings up the price of physicals and lowers the price of futures. If the price of physical cocoa is expensive vs. the futures contract, traders will buy the futures and accept delivery to sell in the physical markets. This brings up the price of futures and lowers the price of physicals. This process is called “convergence.”
As we can see from the above process, certified stocks influence the futures market directly as the “supply” in the global supply and demand for cocoa. When certified inventory is high, this generally reflects “loose” fundamentals and is bearish for prices, and when inventory is low, it generally reflects “tight” fundamentals and is bullish. There are some exceptions to this rule, but it generally holds true.
The global balance of cocoa outside of certified inventory (and the expected future balance) also influences cocoa prices, but the Certs are in a very real way the realized version of global supply. We can sometimes see disconnects between certified inventory and global cocoa supply, particularly due to seasonal harvest cycles or logistical disruptions. For instance, heavy rains during West Africa's peak harvest can delay transport, temporarily limiting certified stocks despite ample global availability.
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How to Interpret the Certified Inventory
We can see from the above that the cert stocks have a large influence on the futures market, but there are a few key areas that we can look at to gain some insight into the dynamics of the cocoa market.
Total Levels and Trend
The first area that we want to look at is the total level of cocoa in metric tons. Remember that cert levels have an inverse relationship to price. If stocks are low, that is bullish for the futures market, and if it is high, it is bearish.
Therefore, context is important here; we want to look at how the total levels are and then anticipate what the trend is. In many cases, we can tell the trend just by looking at the charts. However, we also want to look at the economics of the physical cocoa market to understand why the trend is moving in the direction that it is and forecast whether it will continue or change.
That said, it is important to consider that, unlike other perishable commodities, cocoa beans can be stored effectively for extended periods, sometimes years, under appropriate conditions. Thus, certified cocoa stocks primarily reflect industrial and manufacturing demand patterns rather than immediate perishability concerns. Traders and chocolate processors monitor these inventories to assess immediate availability, processing capacity, and broader market sentiment, viewing certified stocks as a tangible indicator of current and anticipated industrial demand rather than short-term consumer-driven necessity.
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Pending – “Supply”
To add new supply to the certified inventory, cocoa must be graded by the exchange. This does not happen in an instant; it requires sampling and grading by exchange-approved graders for a lot to be approved as certified cocoa.
When cocoa beans are submitted to the exchange to be certified, they are reported as “pending” certification. If many cocoa lots are submitted all at once to the exchange, this can build up quite a backlog of cocoa beans! These pending stocks are not yet able to be used as certified cocoa, but the market is aware of them as potential supply. When these stocks get very large, several thousand metric tons or more, this can be considered quite bearish.
Locations
On the second page of my report, I show the locations of where the certified cocoa is stored. This is important for 2 main reasons.
First, potential users of the cocoa care about where they will receive it if they accept delivery (called “stopping” cocoa). If cocoa is primarily stored in a convenient location, such as Hampton Roads or Delaware River, it will incentivize them to take delivery.
The second reason is just to understand what the certified cocoa inventory represents geographically. For example, now the certified inventory is primarily stored in Delaware River. Therefore, when we look at the certified inventory, we know that this is more representative of North American stocks as opposed to European.
Qualities
Similar to location, we can also see what origins make up the cocoa inventory. This gives us quick insight into when the cocoa beans were certified, as those who watch the certified stocks keep tabs on which origins are certifying at which time. The qualities also provide insight into the potential consumers who may find certain qualities more attractive, especially if prices in the physical market are expensive.
Conclusions
There is actually a lot more to the certified inventory than we have outlined here, but the key relationship is to remember that inventory is inversely related to futures market prices. It is important for those of us who participate in or analyze the cocoa markets to keep track of inventory levels.
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