Bloomberg News

Cocoa Buying Slows in Europe Due to Backwardation

April 27, 2012

Cocoa purchases in the European market slowed this week as the July futures in London switched to being more expensive than later-dated contracts, reducing buyers’ incentive to stockpile, according to three traders.

The cocoa market on the NYSE Liffe exchange moved into a so-called backwardation, with the July contract trading above later-dated ones through March 2013. The price structure, which may signal concerns about supply, reduces the incentive for buyers to extend coverage and keep beans in storage.

“In principle, the backwardation in London should encourage the selling, but if the demand is not there, buying up the supply chain should slow,” Keith Flury, an analyst at Rabobank International in London, said by e-mail today. “It seems to me no one would want to stockpile anything in the European market.”

Sales of beans from Ghana, the world’s second-biggest grower, were slow in Europe as buyers lost the incentive to stockpile, said the traders, who have direct knowledge of the sales. They declined to be identified because they are not allowed to speak to the media.

Ghanaian beans from the current crop, in the European market, cost 85 pounds ($138) to 90 pounds a metric ton more than futures on NYSE Liffe in London, according to the traders. That compares with a premium of 85 pounds to 110 pounds last week. Beans from the new crop that starts in October are selling at a premium of 90 pounds to 95 pounds, the traders said.

Sales of Ghana’s 2012-13 crop have already reached more than 200,000 tons, London-based Jonathan Parkman, co-head of agriculture at Marex Spectron Group, said today. The African country sells the cocoa at pre-set prices before the harvest that starts in October. The market there is controlled by the state, with the Ghana Cocoa Marketing Company responsible for selling the beans on behalf of the Ghana Cocoa Board, the industry regulator known as Cocobod.

Ivory Coast Beans

Beans from Ivory Coast were not trading in the European market as the mid-crop, the smaller of two annual harvests that usually starts in April, is delayed, according to the traders.

Ivory Coast “has been hit by a dry spell over past months, which would imply a possible delay in the start of the mid-crop harvest, due in April,” Lysu Paez, an analyst at Natixis SA in Paris, wrote in a report e-mailed yesterday.

Cocoa for July delivery rose 0.7 percent to 1,519 pounds a ton by 1:52 p.m. on NYSE Liffe in London.

To contact the reporter on this story: Isis Almeida in London at

To contact the editor responsible for this story: John Deane at

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