March 30, 2015 / 4:44 PM / 4 years ago

CME scores victory in day one of battle of new cocoa contracts

* Focus shifts to physical delivery specifications

* Too early to predict which contracts will succeed

By David Brough

LONDON, March 30 (Reuters) - CME Group won the first round of a battle of two new euro-based cocoa futures contracts against rival exchange ICE Futures.

More than 200 lots traded through the CME contract on Monday, marking the exchange’s entry into deliverable soft commodities as it seeks to break ICE’s dominance of cocoa futures trading.

ICE had no trades in its euro contract by late afternoon in London. But it already dominates cocoa futures trading with its longstanding sterling- and dollar-based cocoa contracts.

CME has sought to capitalise on concerns that ICE’s sterling contract does not always align closely with the physical market in Europe.

A euro-denominated contract makes sense because chocolate makers buying cocoa products such as powder and butter mainly purchase in euros. The currency of the world’s top cocoa grower Ivory Coast, the CFA franc, is also pegged to the euro.

A euro contract would also reduce foreign currency costs for some large processors such as Barry Callebaut and Cargill with operations in continental Europe.

The CME contract <0#1CCP:> had trades totalling 240 lots, in the July, September, December, and March 2016 delivery months, as of 1723 GMT, after the session began with a handful of trades in the spot July contract.

“CME would be reasonably pleased if they could see a couple of hundred lots traded on the first day,” said Jonathan Parkman, joint head of agriculture at Marex Financial.

ICE’s new euro contract <0#ECC:> had no trades by 1725 GMT.

On Friday, ICE’s London cocoa futures contract traded 31,674 lots. ICE’s sterling contract <0#LCC:>, which was originally launched in 1928, is one of the last commodities futures traded in sterling.

By late Monday the benchmark ICE May cocoa futures contract had traded 15,879 lots.

“Today, by far the most popular contracts are the old, existing ones,” Parkman said, adding it was too early to tell which of the new contracts would succeed.

Another senior London-based cocoa futures broker said attention would shift to implementation of the physical delivery process under the CME contract.

“At the moment, the liquidity is with the traditional markets, as you would expect,” he said. “This is a long-haul game.”

ICE said last week it will soon announce changes to the way bulk cocoa is handled under its sterling and euro-denominated markets. (Reporting by David Brough; Editing by Susan Thomas)

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