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* Cocoa market seen as too small for 3 contracts
* Monopoly concerns help drive support for new contract
By Sarah McFarlane
LONDON, June 19 (Reuters) - The world's two major agricultural commodity exchanges will soon go head-to-head in cocoa, but insiders are sceptical that the small market can support the addition of a third futures contract.
Last week the world's largest futures exchange operator CME confirmed it would launch a London-based cocoa contract in coming months.
That is a direct challenge to IntercontinentalExchange Group Inc, which runs the existing two major cocoa contracts in London and New York.
"I don't think the liquidity is there to support three contracts," said Jonathan Parkman, joint head of agriculture at broker Marex Spectron.
"It suggests that one of the contracts would not survive into the future."
The CME is yet to publish the specifications for its planned contract, but industry sources say it will be in most direct competition with ICE's Liffe London-based contract, both are sterling denominated and focused on the physical cocoa trade in Europe.
"I think the battleground will be between the Liffe contract and CME contract," Parkman said.
ICE's New York-based contract is dollar-denominated and attracts more speculative or non-commercial trading.
ICE added the Liffe cocoa market to its New York derivatives following its takeover of Liffe in November last year, making it the operator of the two major cocoa markets.
At the time, some traders expressed concern that the exchange would have a near monopoly over softs markets including cocoa, lamenting the loss of competition.
"It's always good to have an alternative," a European trader said.
Last week at the World Cocoa Conference in Amsterdam, when asked whether the cocoa market was large enough to support three futures contracts, Tim Andriesen, CME's head of agricultural products, said: "The feedback we are getting is that the contract that we're going to launch is one that the market will support.
"We as an organization try not to chase opportunities that don't exist, so for us to get to the point that we are ready to launch a contract we've gotten there with a lot of conversations with customers who have said 'if you do this we will support it'."
ICE declined to comment on whether the cocoa market was large enough to support an additional contract.
It can be difficult for new futures contracts to gain traction, a recent example being the CME's Black Sea wheat contract, which has been virtually illiquid since its launch in 2012.
The ASEAN cocoa club spent years working on an Asia-based cocoa contract as an alternative to the existing international cocoa contracts -- to no avail.
"The jury is out as to whether they (CME) can convince people but what they need to do is convince two or three big players, or four or five, and once they go, that will be it," a second European trader said, adding there was not room for all three contracts.
Speaking on the sidelines of the conference in Amsterdam last week, an executive from Cargill, one of the world's top three processors of cocoa beans, said liquidity was crucial to the success of a new contract.
"It's a relatively small market with a relatively low liquidity and by adding another exchange I don't think that will help to increase liquidity. For all the players in the market liquidity is absolutely key," Jos de Loor, Cargill's president of cocoa and chocolate, said.
At the same conference, major bean trader Olam International said it was following the developments with interest. (Reporting by Sarah McFarlane; Editing by Veronica Brown and Keiron Henderson)