Cocoa Strength Due to the Ebola Virus? Absolutely…Not

Over the past few weeks I’ve seen numerous people comment that the recent strength in cocoa prices is due to the Ebola virus in Africa and other places in which cocoa is produced. Me, being a natural skeptic, decided to check it out and figure out whether or not these two actually had real correlation or relationship whatsoever. What I found was well, not surprising in the slightest.

Below is a daily chart of cocoa futures over the past two years. I’ve added a 200 day simple moving average to help us identify the long term trend over this period. Clearly, with a rising moving average, the trend is higher and has been higher since the uptrend confirmed with a series of higher lows and higher highs in August of 2013.


Given the hypothesis that cocoa prices and Ebola are related, we should have no trouble finding news articles written on Ebola in 2013 when cocoa confirmed its uptrend in price, right? As you can see by the picture below, which is a google search of news articles related to ebola from March of 2013 to August of 2014, there are, well, barely any hits during that time period.

Ebola 1

Now lets expand the search to September 1st 2014, and see how many hits we get.


As you can see, there were hundreds of articles written about Ebola during the past month. Well, since cocoa prices are up during the one month period in which the Ebola virus became the news story of the year, clearly they must be connected right? No, not at all. Cocoa prices have been trending higher for the past year and a half, well before any of us new what an Ebola was. Just because something looks like it may be correlated, doesn’t mean it actually is.

Now that we’ve settled that debate, I invite you all to go back to caring about stuff that actually matters when valuing asset prices, like supply and demand. At the end of the day, saying cocoa remains in a strong uptrend is a lot less sexy than talking about why cocoa is a buy because of suppliers in Africa are being affected by Ebola. But, as market participants our main concern is making money, not about getting page views or press for what sounds like a cool story.


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