* Front-month premium at highest level since 2010
* Liffe certified cocoa stocks at lowest level since 2003
By Sarah McFarlane and Nigel Hunt
LONDON, Dec 7 The premium of the spot cocoa
contract on NYSE Liffe has surged to a more than
two-year high just days before it expires, raising questions
whether new exchange rules to curb speculation and prevent
artificial supply crunches are effective.
The price difference between the contract for December
delivery and the March contract widened to 74 pounds
($120) on Friday from 5 pounds a week ago, reaching a high over
80 pounds on Thursday.
Traders say it could go even wider because
exchange-certified stocks are at their lowest level since 2003.
Further complicating the picture, one trading house, Olam
International, is holding most of the available
certified stock and may take delivery of more cocoa when the
December contract expires next Wednesday, traders say.
The December cocoa contract is the first to be affected by
the new rules, which the exchange introduced ahead of expected
European market regulation to curb speculation.
They include a 7,500-lot limit on long positions in a
delivery month, which is equivalent to 75,000 tonnes of cocoa.
But that rule may not help prevent a delivery crunch in this
case, because available exchange-certified cocoa stocks amount
to only 49,170 tonnes, far below the new limit on a single
In addition, open interest on the December contract,
equivalent to 175,340 tonnes, is far in excess of the small
supply of certified cocoa beans.
Olam declined to comment on the amount of the certified
stocks it holds or whether it intends to take delivery of cocoa
from the December contract.
The company has been bullish on the cocoa market,
forecasting a 2012/13 world deficit in excess of 150,000 tonnes.
FAILING THE GRADE
Stocks are low due largely to the failure of some
1,000-tonne, bulk deliveries of cocoa submitted to the exchange
for grading as well as to a slower-than-expected flow of cocoa
from top global producers Ivory Coast and Ghana in the initial
weeks of the 2012/13 season.
"You've got concerns of depleted valid Liffe stocks (and) a
higher proportion of cocoa failing and being put up for
re-grading, but time is running out," a London-based broker
"It does now come down to available cocoa (for grading) and
The last time the spot premium soared on the front-month
contract was in July 2010. Cocoa trader Armajaro took delivery
of almost all the certified cocoa stock available for that
contract, even after some market participants had complained to
the exchange about speculation and lack of transparency in the
Asked whether it was concerned about the relatively high
level of open interest on the December contract, Liffe said in
an emailed statement, "As with any contract nearing expiry, the
exchange is in regular contact with large position holders and
all positions are closely monitored."
Delivery limits are only part of Liffe's oversight of
positions, it said.
"In the event that the exchange determined that any given
position was not in the best interests of the market, it is
within its powers to instruct the member to reduce such
Time is running out for more cocoa supplies to be submitted
for exchange grading before the contract expires.
"This market is at such a premium people could request the
(exchange) grading room to work at the weekend," a London-based
The exchange said as of late Thursday, however, it had not
received any requests from members to open grading rooms over
the weekend and planned to continue grading cocoa on a business
as usual basis.