Asia Cocoa: Butter ratios hit 14-month low on high prices, stocks

JB Foods

21/10/2014 12:25

By Fergus Jensen 
    JAKARTA, Oct 21 (Reuters) - Asian cocoa butter ratios are 
trading at their lowest in more than 14 months as the market 
faced pressure from high butter prices, high powder stocks and 
sluggish chocolate consumption, traders said. 
    Butter ratios, a key indicator of demand, were quoted as low 
as 2.2 times London futures  0#LCC: , their lowest since early 
August 2013, although there were offers at 2.25 times. Two weeks 
ago, ratios stood at 2.28 to 2.35 times futures.  COCOA/ASIA1  
    Cocoa beans are processed into roughly equal parts butter, 
which gives chocolate its smooth texture, and powder, which is 
used in cakes, biscuits and drinks. Grinders do not generally 
release data on the size of their powder stocks. 
    Cocoa butter prices often move in the opposite direction to 
powder, as grinders seek to offset or balance their prices when 
either butter or powder prices are low. 
    Wavering demand has seen butter prices come off recent 
multi-month highs above $8,000 a tonne to around $7,000, but 
this was still too expensive for many confectioners, traders 
said. As butter came down, powder prices were seen up slightly 
at between $1,700 and $2,000 a tonne. 
    "The problem right now is that futures prices are really 
high, so end users don't want to buy if it's not within their 
budget," said a Singapore-based trader adding that often cocoa 
butter was sold up to a year in advance.  
    "They are buying just to cover, they are not buying forward. 
Everything is in small quantities and butter (prices) are not 
really moving." 
    Cocoa butter prices may face pressure from low prices of 
competing products such as palm-oil based substitutes, the 
trader said, as palm prices not far off five-year lows.  POIL  
    "A lot of confectioners would seriously consider reducing 
the content of cocoa butter." 
    Another Singapore trader said the key driver affecting 
butter and powder prices was chocolate consumption and noted 
chocolate consumption has been "slackish to down". He referred 
to recent statements from top chocolate producers Mars, Hershey 
 HSY.N  and Nestle  NESN.VX . 
    U.S. Hershey said on Friday U.S. cocoa stocks are high 
enough to prevent any disruption to supplies well into 2015, 
playing down concerns that Ebola in West Africa could have an 
impact on the cocoa trade.  ID:nL2N0SC1L6  
    Cocoa processing in North America jumped almost 5 percent to 
a record high in the third quarter, data on Thursday showed, 
beating expectations amid concerns about dwindling demand as 
bean futures prices soar to multi-year highs.  ID:nL2N0SB2VP  
    Powder purchases from the food and beverage industries in 
Asia have yet to catch up with a jump in output as Indonesia 
overtakes Malaysia as Asia's largest grinder, resulting in an 
oversupplied market and pushing down powder prices.  COC/AS  
    "There's a lot of stocks lying around and there's a lot of 
selling pressure because people have a lot of capacity to sell," 
the trader said. 
    "If everyone continues to grind full at close to budget then 
this high inventory situation will remain for a long long time." 
    Indonesia's grinding capacity is expected to jump 85 percent 
to 600,000 tonnes by the end of 2014, boosted by new plants for 
firms such as Cargill  CARG.UL , Barry Callebaut  BARN.S , and 
Malaysian Guan Chong Berhard  GNCH.KL . 
 ID:nL1N0O20SB  ID:nWNBB04GPE   ID:nL3N0O71ZX   ID:nL4N0MV2IT  
    However, recent figures show cocoa processing in Malaysia 
fell 13.7 percent from a year earlier to 61,428 tonnes in the 
third quarter, the Malaysian Cocoa Board said on Tuesday, 
reflecting slow demand and rising costs.  ID:nL3N0SG243  
    Indonesia, the world's third biggest producer of cocoa beans 
began harvesting this month in the country's top growing region, 
although output remained depressed, according to the Indonesia 
Cocoa Association (ASKINDO). 
    "It is still minimal," ASKINDO deputy chairman for South 
Sulawesi Dakhri Sanusi told Reuters. 
    This year Indonesia's cocoa bean output may fall to around 
425,000 tonnes, its lowest since 2006, as farmers struggle to 
contain an increase of crop diseases. This was expected to boost 
Indonesia's bean imports by 300 percent.  ID:nL3N0LF1M0  
 
 (Reporting by Fergus Jensen, editing by David Evans) 
 ((fergus.jensen@thomsonreuters.com; +62 21 2992 7604; Reuters 
Messaging: fergus.jensen.thomsonreuters.com@reuters.net)) 
 
Keywords: COCOA PHYSICALS