LONDON (Reuters) - The prospect of receiving cocoa from less desirable origins such as Cameroon and Nigeria has dampened demand for the London September contract, with even deep discounts failing to whet buyers’ appetites.
Open interest in the September cocoa contract has dropped dramatically in the last few sessions, and was standing at 11,827 lots by the end of Wednesday.
On Thursday, some 11,108 lots were “exchanged for physicals” (EFP), signaling most remaining open positions in the futures contract had been swapped in exchange for positions in the physical market, where buyers have more control over the quality and origin of supplies.
Official exchange data on the delivery is due on Friday but dealers said they expect the remaining volume sold against the September futures position to be small.
A big reason behind the lackluster demand, dealers said, was that much of the cocoa on offer was believed to be from less desirable origins such as Nigeria or Cameroon.
Many European chocolate makers tend to prefer cocoa from Ghana and the Ivory Coast, the world’s top two producers of the beans.
“You’ve got to look at what origins are being delivered and can they be used,” said one dealer, noting processor appetite is thin for beans from the origins on offer.
Deep discounts also seem to have fallen short of making the offered cocoa more attractive. In earlier trading, the London spot cocoa was being offered at a discount of more than 50 pounds per tonne relative to the December position.
“There seems to be plenty of stock available,” said a second dealer. “And, you’ve seen the September-December structure reflect that.”
A change to the Intercontinental Exchange (ICE) rules earlier this year has also allowed more cocoa from niche origins to be graded and certified, which has also dissuaded buyers, dealers said.
The new rules, which were rolled out in May, are less punitive to non-African cocoa, some of which is seen as lower quality. The rules also require stocks to be graded less frequently.
“A lot of people don’t want to get involved in taking delivery,” said another dealer. “With the change of the rules and the amount of cocoa coming to the board...there’s been obscure origins coming that generally didn’t enter the market.”
World cocoa prices have declined by a third in the last year, weighed by a global supply glut after record production from top growers Ivory Coast and Ghana.
A Reuters poll of traders and analysts earlier this year put the 2016/17 global surplus at 350,000 tonnes, while a smaller global surplus of 100,000 tonnes was seen for the 2017/18 season.
Reporting by Ana Ionova; editing by Susan Thomas