Cocoa supply crunch feared due to I.Coast reform
By Sarah McFarlane
LONDON (Reuters) - Cocoa processors and chocolate makers are stockpiling supplies of beans on fears the London market could face a temporary supply crunch if top producer Ivory Coast's overhaul of the sector delays exports later this year.
The cocoa industry is concerned the reform could leave exporters with uncovered costs and fail to improve the incomes of hundreds of thousands of struggling farmers, and as a result that the 2012/13 season could get off to a slow start.
European processors and chocolate makers have been reluctant to release beans from their stocks onto the futures market in case of any problems with the new season, which begins on October 1, dealers said.
"They're frightened of releasing stock to the futures market and then having to pay an awful lot more to get it back later on when they need it," said Jonathan Parkman, joint head of agriculture at broker Marex Spectron.
The concerns over delays have not pushed up overall cocoa prices but instead have affected the structure of the NYSE Liffe futures market, with nearby contracts trading at premiums to later-dated contracts.
Liffe July cocoa futures are trading at a 52 pound per tonne premium to March futures. Usually nearby contracts trade at a discount, because longer-dated contracts take into account the cost of holding the commodity and interest.
A premium on nearby futures contracts typically suggests tight supplies, but after a record global cocoa surplus in 2010/11, dealers say that on this occasion it reflects uncertainty over Ivory Coast's new system.
"The market is not the way it is because of a real physical shortage, it's based on a perceived physical shortage, but I believe that perception will be proved to be wrong," said Derek Chambers, head of cocoa at France-based commodities firm Sucden (Groupe Sucres et Denrees). Continued...