March 8, 2018 / 4:49 PM / 16 days ago

European spot cocoa premiums widen as buyers scramble for beans

LONDON (Reuters) - A scramble for quality cocoa has pushed prices of beans in Europe sharply higher and made the spot London futures contract suddenly more attractive to buyers, traders say.

The price of cocoa beans from Ivory Coast and Ghana - the origins mostly preferred by European chocolate makers - have shot up on the physical market as buyers scramble to secure the supplies they need, according to industry sources.

The premiums for Ghanaian beans over the spot futures contract have widened to as much as 200 pounds per ton, while high quality Ivorian beans are trading as much as 85 pounds above spot futures prices, traders said.

“Differentials for physical beans in Europe are astronomical at the moment,” said one dealer. “It’s suggesting there’s a lack of beans.”

Market sources said the nearby supply squeeze was partly due to a decline in the quality and volume of new cocoa from West Africa over the last month, as the main crop winds down in Ivory Coast and Ghana, the world’s top two producers.

The supply pressure has been intensified by the fact that Ivory Coast’s cocoa marketing board appears to have sold forward up to 170,000 tonnes more main crop export contracts than it’s now expected to produce.

“The shippers locally are running around looking for cocoa to be able to honor their contracts,” said a second dealer.

Sources also said a recent surge of West African cocoa being shipped to the United States over the last few months has reduced supplies in Europe.

Stocks in European ICE warehouses were at 224,560 tonnes as of March 8, down from 265,390 tonnes three months ago. In the same period, supplies in certified U.S. warehouses rose to 293,454 tonnes from 234,422 tonnes.

While some of these stocks would typically be replaced by cocoa from Nigeria and Cameroon, traders said exports out of those origins have been slow in recent months, further deepening the supply crunch.

The shortage in physical supplies has also suddenly made the futures market much more attractive to buyers, dealers said.

The March contract, which expires on Wednesday, flipped to a premium relative to the May position this week.

The spot contract’s premium over the second position also rose to 33 pounds per ton on Thursday, its highest on a continuation chart since November 2016.

This signaled the supply crunch may be outweighing worries about old or poor quality Cameroon cocoa hedged against the London market, which sent buyers fleeing during the last two contract expiries.

“In these conditions, it seems the Cameroon beans that are in the stock are not so ‘toxic’ anymore,” another dealer said.

Reporting by Ana Ionova, additional reporting by Nigel Hunt; editing by David Evans

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