In general, cocoa futures contracts are not used to secure the supply of cocoa beans, but rather to offset the risk of adverse price movements. A cocoa futures contract is a commitment to make or to take delivery of a specific quantity and quality of cocoa beans at a predetermined place and time in the future. All contract terms are standardized and set in advance. As a result, cocoa futures contracts are interchangeable, except for delivery time.
There are currently three places where cocoa futures contracts can be exchanged: ICE Futures U.S. (New York), ICE Futures Europe (London) and CME Europe (London).
Prior to March 2015, cocoa futures contracts were quoted only in British pounds sterling and in U.S. dollars. However, as almost half of the cocoa traded originates from Côte d’Ivoire, Cameroon and Togo (whose currencies are pegged to the Euro), and a third of world cocoa production is processed within the Eurozone, new Euro-denominated contracts were introduced in March 2015, thereby reducing the need to hedge against foreign exchange risks in the cocoa trade. Cocoa futures contacts are now available in the three currencies.
These organized exchanges provide the facilities and trading platforms that bring buyers and sellers together. Moreover, they set and enforce rules to ensure that trading takes place in an open and competitive environment. For this reason, all bids and offers must be made through the Exchange’s “Clearing House”, via the exchange’s electronic order-entry trading system. As a result, the Exchange’s Clearing House acts as the buyer to all sellers and the seller to all buyers.