Cocoa Spread Collapsing Signals Large December Delivery Ahead

  • Futures for December traded at record discount to March
  • Spread is an opportunity given production uncertainty: Marex

Get ready for a large delivery of cocoa later this month.

Beans for delivery in December were at a record discount to March futures, which may mean ample supply. It could also signal someone is planning to deliver a lot of cocoa when the contract expires on Dec. 14, according to Jonathan Parkman, co-head of agriculture at London-based futures and options brokerage Marex Spectron Group.

That could be a good opportunity for traders because there’s evidence of production issues in Ivory Coast, the world’s biggest producer. The gap between the two contracts reached 32 pounds ($48) a metric ton on Thursday, the widest since trading started last year. Prices for the chocolate ingredient have risen 15 percent this year, the most among commodities in the Standard & Poor’s GSCI Index.

"Some traders that may not have thought about taking delivery before may now start to get interested," Parkman said.

Ivory Coast farmers sent 45,000 tons of cocoa to ports in the week ended Nov. 29, down 18 percent from the prior seven days, said a person familiar with the matter, who asked not to be identified because the figures haven’t been made public. That’s the lowest for that week in any year since 2010-11, according to data from KnowledgeCharts, a unit of Commodities Risk Analysis.

Lower arrivals at ports may mean dry weather earlier this year has taken a toll on the nation’s main crop, which started in October and runs through March. Rains that have been about 30 percent above normal since October are supporting the development of cocoa, according to Speedwell Weather. Wet weather will also benefit the smaller of two annual crops that usually starts in April.

"The spread is a lot weaker than I thought it would be given the uncertainty over production in West Africa," Parkman said by phone. "Some argue there’s enough cocoa around for now, but the question is whether there will be after March. It looks like someone is prepared to make a large delivery against December."

Cocoa for March delivery added 0.5 percent to 2,308 pounds ton on ICE Futures Europe by 1:42 p.m. London. Beans for the same month rose 1.2 percent to $3,372 a ton on ICE Futures U.S. in New York.

In other markets, white sugar for March climbed 0.5 percent to $414.30 a ton in London as the raw variety added 0.5 percent to 15.41 cents a pound in New York.

Robusta coffee for January added 0.9 percent to $1,512 a ton in London. The arabica variety for March delivery climbed 1 percent to $1.2165 a pound in New York.

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