Cocoa, Coffee, Sugar and Wheat

Cocoa
Information about Cocoa
The history of cocoa dates back to the 6th century with its origins in the Amazon Basin. Cocoa was first brought to Europe in the 17th century in the form of a luxury drink. It was not until the 19th century that technology facilitated the roasting and pressing of cocoa beans which resulted in the creation of eating chocolate.
The major producers of cocoa beans are based in West Africa, Latin America and the Far East. Côte d'Ivoire is the largest single producer, with an annual crop of over 800,000 tonnes. Countries such as Brazil, Indonesia, Ghana, Malaysia and Nigeria also feature as major producing countries. Annual production of cocoa stands at around 2.6 million tonnes.
The major importers of cocoa beans are the USA, Netherlands, Germany, UK and France with most cocoa products being consumed in Europe and the USA respectively.
Cocoa production
The cocoa tree is a native of the equatorial Americas, originally flourishing in the lowland forests of the Amazon-Orinoco basin. Shaded by larger forest trees, the cocoa tree can rise to modest heights of 6-9 meters.
Light green or red in the young plants, the leaves gradually turn green as the tree matures. Buds, flowers and the fruits appear on the older, leafless part of the tree. The flowers are small & delicate, in hues of white, yellow and pink. The fruit or pod is a large berry 15-25cms long, containing 30 to 40 seeds. Five or six months elapse from the time of flowering to the development of a mature pod. Throughout the year pods at varying stages of maturity, from small and green to full-size yellow and red, can be seen side by side on the cocoa tree. Mature cocoa pods resemble muskmelons or thickly ribbed gourds. Inside their tough woody husks, embedded in a mucilaginous pulp, are the seeds which, when fermented and dried, become cocoa beans. The pods grow mainly along the main stem of the tree.
Harvesting is a hand operation in which the cocoa pods are cut down from the tree. They are then opened and the pulp-covered beans are then scooped out. Once out of the pod, each cocoa bean must be freed from the firmly adhering pulp, separation is accomplished in the curing or fermentation process. Fermentation, which takes a number of days, browns the white or purplish seed, reducing its bitterness, and hardens the seed-skin to shell. Curing, (drying of beans, mainly by the sun), the beans are spread out on raffia or palm leaf mats, which can be carried inside in bad weather. This method of drying produces a higher quality product but takes a week or two and is highly labor intensive.
Futures and options contract information
The Cocoa Futures contract was originally launched in 1928. Over the years changes have been made to ensure the contract remained an effective hedge for all market participants, contributing to its success as a world leading cocoa futures contract.
The Cocoa Options contract was launched in 1987 in order to offer market participants even greater flexibility and choice in their trading activities. Futures and options volumes currently equate to approximately 7 times global production of cocoa.
Market users
The major users of the contract include the international cocoa trade, cocoa processors and chocolate manufacturers, managed futures funds, institutional investors and options specialists.
The long term support of the underlying cocoa trade and industry has ensured that the Cocoa futures contract has retained its role as the premier price fixing medium for physical cocoa contracts. Complementing this, the contract's close relationship to the physical market place, coupled with high levels of market liquidity, have continued to attract an ever-increasing level of business from the international investment fund community.

Robusta coffee
Information about Coffee
Coffee has a significant impact on the economies of over forty producing countries. In value it is second only to oil in terms of international trade and surpasses sugar, rice and wheat as the major agricultural commodity. Over twenty million people are employed in growing, distributing and retailing coffee world-wide.
There are two main types of coffee:
Robusta: is grown at altitudes usually up to 800 meters. Indonesia, West Africa, Brazil and Vietnam are the most dominant growing areas. Robusta currently represents around 30% of world production.
Arabica: is grown at altitudes between 600 and 2000 meters. Latin America and East Africa are the most dominant growing areas. Arabica currently represents around 70% of world production.
Robusta Coffee production
It takes approximately four years for a coffee bush to produce a useful crop. The first sign of the size and health of the crop is the white flowers which appear along the branches. The fruit or "cherry" (named because of its resemblance, not its flavor) is green at first, but changes to yellow and finally to red when it ripens.
The cherry should only be picked when red, the work is extremely labor intensive. Coffee cherries do not ripen simultaneously even when they are on the same branch so mechanical picking is not a particularly viable option, although it is used in some areas. Coffee bushes are kept at a manageable height of around six feet for harvesting purposes. In the wild they can grow much higher.
Depending on the country of origin and the quality of bean, coffee is usually processed in one of two ways:
"Dry Processing": this process involves spreading the cherries out on the ground to dry in the sun for two or three weeks. The cherries are then fed into machines which remove the outer husk. The green bean is now ready to be cleaned and sorted.
"Wet Processing": this process involves soaking or "fermenting" the ripe cherries in tanks until the outer layer is ready to be moved. This layer, called pulp or "mucilage" is then removed by machine. The bean is then left encased in a dry brittle covering known as "pergamino" or "parchment". The coffee can be left in this state for some time, or the parchment can be removed in order to sort the coffee into grades.
Of the two methods "Wet Processing" is usually considered to produce higher quality coffee but at the same time is more expensive
Futures and Options Contract Information
Euronext.liffe's Robusta Coffee Futures contract was originally launched in 1958 and is used globally as the benchmark pricing mechanism for Robusta Coffee.
It was the major coffee price rises of the 1970s that caused use of the contract to rise substantially as more and more businesses within the industry realized the benefits of using futures as a risk management tool. Since this time, the use of coffee futures and options as a hedging medium has become an almost integral part of the international industry by allowing all of those involved to minimize the losses associated with unfavorable price movement. Futures and options volumes currently equate to approximately 5 times the global production of Robusta Coffee.

Futures and Options Market Users
The main contract users are coffee exporters, international trade houses, European and U.S. coffee roasters, managed futures funds, institutional investors and options specialists.
The long term support of the underlying coffee trade and industry has ensured that Robusta Coffee futures have retained their role as the premier price fixing medium for physical coffee contracts. Complementing this, the contract's close relationship to the physical market place, coupled with high levels of market liquidity, have continued to attract an ever-increasing level of business from the international investment fund community.

White sugar
Information about Sugar
The first recordings of real sugar extraction came from West China in the early 1700's. Cultivation spread into Northern India, and then westwards along the trade routes. Eventually Spaniards spread the cultivation of sugar across the Atlantic Ocean to the West Indies, the geographical region that is often thought of as the origin of sugar as it is known today.
Sugar was once deemed to be an exclusive product, originally consumed only by the wealthy, but it is now recognised as integral part of a staple diet world-wide.
Sugar originates from two distinctly different plants, Cane and Beet. The cane plant is a grass and is grown in tropical climates mainly in the Southern hemisphere, whereas the Beet plant is a tuber and is grown in cooler climates almost exclusively in the Northern hemisphere. White sugar can be produced from both Cane and Beet - the only product difference is in its final appearance. White sugar from Beet tends to be produced in slightly smaller and more uniform crystals than that from Cane. There is no difference in taste between the two.
There are four stages in the production of white sugar from cane: juice extraction, purification, crystallization to raw sugar and then refining. Cane by-products are bagasse, molasses and filter presse. White Sugar from Beet has only three stages as no raw sugar is produced. Beet by-products are beet pulp and beet molasses.
The quality of white sugar is measured on the ICUMSA scale (the International Commission of Uniform Methods of Sugar Analysis). This scale measures the purity of the sugar according to the reflection of light through the sugar crystals, with zero being the purest possible
White Sugar Production, Trade and Use
In 2002, some 148 million tonnes of sugar (raw value) were produced worldwide with cane sugar accounting for some 110 million tonnes and beet 38 million tonnes. This figure is variable and will depend on political and climatic changes, disease and weather conditions. For example, world sugar production was 118 million tonnes in 1995 and 135 million tonnes in 1999.
The biggest producing countries of sugar (cane and beet) are Brazil, India, EU, China, USA, Thailand, Australia, Mexico and South Africa. Of these, the main producing countries of white sugar from beet are the European Union, USA, Turkey, Poland, Ukraine and Russia.
In 2002 annual world consumption of sugar was 141 million tonnes. Raw and white sugar consumption continues to increase year on year, in line in particular with the growth rate of developing countries. The world's largest consumers of sugar are India, EU, China, Brazil, USA, Russia, Mexico and Indonesia.
World trade in raw sugar is typically around 22 million tonnes and white sugar around 16 million tonnes. The largest exporters of white sugar are the EU and Brazil, followed by India, Thailand and Turkey. The largest importers are the Gulf states, the Middle East, North Africa, Nigeria and Indonesia.
Futures and Options Contract Information
On the international market there are various qualities of white sugar. Nevertheless, Euronext.liffe's White Sugar Futures Contract, launched in July 1983, has become the benchmark against which white sugar is traded. The basis of the contract is 45 ICUMSA white sugar, delivered Free on Board (FOB) in designated ports across the world.
The White Sugar Options contract was launched in September 1989.
In 2002, Euronext.liffe's White Sugar Futures Contract traded over 1 million lots. This represents over 50 million tonnes of white sugar, over 3 times the volumes of white sugar traded on the world market.

Futures and Options Market Users
Euronext.liffe's White Sugar contract is designed to meet the hedging requirements of the international sugar industry whilst also allowing for speculative investment in this historically price-volatile commodity.
The contract is relied upon as the global benchmark for the pricing of physical white sugar, and is actively used by the international sugar trade as well as by sugar millers, refiners and manufacturers who wish to actively manage their exposure to adverse price movements.
In recent years, the contract has also enjoyed increasing involvement by managed futures funds and both institutional and short-term investors.

Wheat
Information about Wheat
The production of wheat dates back to Biblical times in being a staple foodstuff for both the human and animal population. Wheat is derived from wild grasses, their occurrence around the world largely dictated by climatic and topographical factors. Within the last century wheat husbandry has become increasingly sophisticated with on-going improvements in yields and quality due to scientific research and development, to satisfy the ever-increasing demand across the globe.
Wheat Production, Trade and Use
On average, the UK produces about 14-16 million tonnes of wheat on an annual basis. Use of wheat for animal feed (mainly pigs and poultry), at about 6 million tonnes per year, and exports, at about 4 million tonnes per year, remain the dominant outlet.
The wheat industry comprises a number of different sectors including farmers, merchants, cooperatives, processors (animal feed manufacturers, starch manufacturers, millers), and exporters, whose trading relationships embrace a history of both spot and forward trading.
The wheat industry is still supported within the EU by means of the Common Agricultural Policy (CAP), but less so than a decade ago. The General Agreement on Tariffs and Trade (GATT) in 1995 combined with the EU CAP reforms introduced in 2000, have progressively reduced EU price support levels for wheat, as well as export subsidies and import levies. Further reductions in direct support are scheduled from 2004.
These developments coupled with price uncertainty due to currency fluctuations have resulted in greater volatility in the UK wheat market.
Futures and Options Contract Information
Grain Futures trading in the UK dates back to 1929 while the present wheat futures contract was developed in the mid-60s. Over time the contract has attracted a loyal and widespread customer base throughout the UK and spreading into mainland Europe. The Wheat Options contract was launched in August 1988.
The contract specifications are regularly monitored to ensure that they reflect physical requirements and prices usually show a familiar and fairly consistent pattern during the season. The wheat futures prices are representative of levels at which wheat is being traded in the physical or cash market and, with some 80% of the UK wheat crop being hedged on the futures contract, serves as "a benchmark" for the physical market.
Futures and Options Market Users
The Wheat futures contract is traded by all sectors involved in the Uk wheat trade, from growers through to processors. Increasing volatility has also attracted business from continental EU grain traders and occasionally private investors/speculators.