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Cocoa spreads jump in London as global shortage starts to bite

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Cocoa traders are starting to feel this year's global shortage as the price gap between futures contracts in London widens.

[LONDON] Cocoa traders are starting to feel this year's global shortage as the price gap between futures contracts in London widens.

The premium that beans for September delivery command over the next futures contracts surged 33 percent in the past week. Cocoa deliveries to ports in Ivory Coast, the largest producer, are running 18 percent behind last year, according to a person familiar with the data who asked not to be identified as the government statistics haven't been published.

"There has been much talk during the course of this year regarding the shortfall in cocoa," trader Cocoanect BV in Rotterdam said in a report Friday. "As a consequence of reduced cocoa availability, time spreads have generally firmed and only retraced during the most recent correction in the market." Cocoa for September delivery was £56 (S$94) a metric ton more expensive than beans for December on ICE Futures Europe in London, up from £42 a week earlier. The December contract also extended its premium over March to £54 a ton, a 20 per cent increase from a week earlier.

Supplies of cocoa that can be processed this season will be 320,000 tons lower than demand, Olam International Ltd.'s Chief Executive Officer Sunny Verghese said last week. Bean deliveries in Ivory Coast came to 1.47 million tons from the start of the season Oct 1 to Aug 8, said the person familiar with the data.

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The supply crunch has also started being felt in the physical market, where buyers are paying a higher premium as the smaller of two annual crops comes to an end. Ivorian beans were trading in the European market at a premium of £66 to London futures, up from £58 a month earlier, according to data from KnowledgeCharts, a unit of Commodities Risk Analysis.

"Over the last few weeks, the output gap in the main cocoa- producing regions has widened significantly as the mid-crop has dried up," Cocoanect said. "Differentials for spot cocoa have firmed as processors have been running down their physical cover." Cocoa for December delivery was unchanged at £2,455 a ton in London as the New York contract for the same month was little changed at US$3,112 a ton on ICE Futures US.

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