January 10, 2020 / 4:46 PM / 19 days ago

ICE delays London cocoa listing as it finalises rule changes

* Warehouse rent rules to replicate those in robusta coffee

* New grading rules for bulk delivery units also proposed

By Nigel Hunt

LONDON, Jan 10 (Reuters) - ICE Futures Europe said on Friday it had delayed the listing of the December 2021 London cocoa contract until March 17 as it finalises changes to grading and warehousing rules.

The exchange sought feedback on its plans by Dec. 27 and had initially sought to list the contract on Jan. 17.

“The exchange has received feedback on the proposals which is being incorporated into the changes,” the exchange said in a circular on Friday.

When finally approved, changes will be implemented for the December 2021 and subsequent contracts.

ICE has been seeking to address complaints about high warehousing charges for companies taking delivery of cocoa on the futures market and its proposal replicated a change introduced for its robusta coffee market, effective for the July 2018 contract.

Under its proposed rules, the seller rather than the buyer of cocoa tendered against the contract would have to pay the cost of removing cocoa from an exchange warehouse after delivery. The new rules also penalise the seller if the rent paid by the buyer is above the average for exchange warehouses.

There have been complaints in recent years that sellers of cocoa negotiated cheap rates for loading cocoa into warehouses and the rent they paid in a system which allowed warehouses to then charge much higher rates to the buyer.

The global average warehouse rent for robusta coffee has fallen since similar changes were introduced last year.

ICE Futures Europe also plans to change the grading system for bulk delivery units (BDUs) of cocoa.

BDUs consist of 1,000 tonnes of loose cocoa in contrast to smaller Standard Delivery Units (10 tonnes) and Large Delivery Units (100 tonnes) where the cocoa is bagged.

Sampling BDUs has proved challenging due to the large volume and heavy weight of the cocoa and has required the cocoa be moved from one warehouse pen to another on a conveyor belt.

Moving the cocoa, however, can create residue as beans are sometimes broken during the process which can lead to it failing to pass the grading test.

The proposed change had provided an option for the owners of the cocoa to reduce the number of gradings although a discount is applied linked to the amount of time since the last check.

There has been a huge increase in the proportion of cocoa in bulk format delivered on the exchange in the last few years, reflecting a similar trend in the commercial supply chain. (Reporting by Nigel Hunt; Editing by Susan Fenton)

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