Hershey says ICE cocoa futures market is disconnected from reality

Chocolate maker Hershey Co said the ICE New York cocoa futures market is disconnected from the reality of the global physical market due to exchange actions that have reduced liquidity and increased volatility.

Tricia Brannigan, Hershey's vice president for procurement, told Reuters on Tuesday that high margin calls on ICE's cocoa futures market drove commercial players away, reducing open interest and causing sharp price swings. She asked ICE to investigate speculators' activities for any disruptive behavior.

ICE did not immediately respond to a request for comment.

ICE cocoa futures prices in New York and London have fluctuated wildly in recent months after hitting record highs in both markets late last year due to production problems in Africa. Prices in New York, for example, fell 10% on Monday, before rising 5% on Tuesday.

"ICE is not providing an orderly market for buyers and sellers," said Brannigan, noting that the cocoa futures market is no longer providing price transparency or helping companies to hedge risks.

"The (futures) market is not functioning properly. Commercial players are leaving the market," she said, referring to chocolate companies and commodities traders who normally use futures to reduce risks from price swings.

ICE has increased margin calls, or the deposits market players have to make as a guarantee for their positions, in the case they lose money. This is a major reason why commercial players have reduced futures activity, Brannigan said.