Price differentials in Europe's cash cocoa market were quoted in a wide range this week with good industry supply cover, the holiday period and firm cocoa futures combining to restrict demand. "I have the impression that quite a few of the big industry consumers have sufficient bean supply cover for the rest of this year including Christmas production," one cash trader said.
"With cocoa futures holding up in the face of falling outside markets, there was little incentive to buy physical supplies this week." Price differentials for good quality Ivory Coast beans were generally down about 10 pounds on the week to 50 pounds over London's September cocoa contract .
But differentials were quoted in a wide range from 50 pounds under London to 50 pounds over, traders said. "With demand weak there is hardly a premium visible for physical deliveries and only good quality can be quoted realistically over London," another trader said. "Poorer quality beans are being quoted at negative differentials."
Butter price ratios were also weak, with nearby deliveries offered at 1.20 times London's September bean contract, down from 1.22 times London last week. "There was not a lot of action in butter this week," another trader said. "Along with the summer holiday season the symptoms of a looming financial crisis seem to be worrying cocoa buyers more than the fundamentals in the cocoa market."
"The high level of cocoa futures this week also discouraged butter buying." Cocoa futures actually rose this week, shrugging off dramatic falls in equity markets and other weak commodities. "There seems to be a belief that chocolate sales are fairly recession proof and so cocoa has held firm this week among the general financial market meltdown," a trader said. "Physical buyers seem to regard the cocoa futures market as too high in the face of good crop prospects in Ivory Coast."
Traders said they expected an overall large crop from the World No 1 exporter Ivory Coast despite some recent negative crop reports. Traders also stressed the belief that European cocoa inventories were high and that the outlook for the coming season is for a global cocoa supply surplus. Better-than-expected cocoa production in West Africa will boost global output to 4.2 million tonnes in the 2010/11 season, creating a surplus of 325,000 tonnes, the International Cocoa Organisation (ICCO) said on Wednesday.
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