Price ratios for cocoa butter, a key chocolate ingredient, were up once more in Europe's cash cocoa market this week as supplies tightened, with talk several large cocoa grinders had further cut production and reduced working hours, traders said on Friday.
Price ratios for cocoa butter offered for sale for August-September delivery in the European cash cocoa market on Friday were 1.50 times nearby London cocoa bean contracts, up from 1.48 times London last week and only 1.22 in early July. Butter for October/December delivery was even higher than spot supplies at 1.55 times London futures.
"We continue to see a squeeze of butter supplies on the market following the reduction in cocoa grindings," one trader said. "Processors are also seeking higher butter ratios to compensate for the continued weak cocoa powder prices." Grinding cocoa beans produces the main products cocoa butter and cocoa powder. While butter goes for chocolate making, cocoa powder is used to achieve chocolate flavour in products such as biscuits, cakes and drinks.
Europe's second-quarter 2012 cocoa grind recorded the sharpest quarterly fall for some 12 years on July 12, dropping 17.8 percent from the same period last year to 292,551 tonnes. "The grinding is still being reduced because the weakening consumer demand as the euro zone crisis weakens spending power, cutting confectionery and chocolate demand especially in south Europe," a trader said. "I think the market is also expecting a further sharp reduction in third quarter European grindings."
There was market talk that several large cocoa grinders and pressers, including Dutch and German companies, have scaled back production. "There is talk some of the multi-nationals have put personnel on short-time working in Germany and Dutch processing plants also seem to be slowing output down," another trader said. "Output cuts are reducing butter supplies and supporting ratios."
Swiss chocolate giant Lindt & Spruengli said on Tuesday it expects consumers to become even more cautious as the euro zone crisis drags on and reported first-half net profit short of expectations. Tight European butter supplies transferred European buying interest to Asia. "We had a lot of European buying interest this week for Asian cocoa butter, especially butter from Indonesia," one trader who deals in Asian butter said. "Indonesian ratios are lower than European but rose from 1.20 to 1.25 in a short time because of the European buying interest."
"Asian supplies are also becoming tight as there were public holidays in Islamic regions including Indonesia this week and production was stopped. There is some worry that Asian suppliers who sold butter at ratios of only 1.0 earlier in the summer might seek price rises with the threat of default." London cocoa futures declined this week a dealers eyed favourable weather in top grower Ivory Coast, ahead of the main crop, with the official start to the new season on October 1.
Improved sunshine across parts of Ivory Coast's main cocoa-growing regions, after weeks of overcast skies, has improved the outlook for the forthcoming main crop, farmers said on Tuesday. "Industry has been buying beans on the futures dips but the recent dip is not all that dramatic as futures are only back to their levels of late July following the peaks reached in early August and we are still above futures levels in May," a dealer said. "With retail chocolate and confectionery prices depressed in most of Europe the fall in futures is not yet all that much of a buying opportunity for industry." Price differentials for cocoa beans were little changed on the week. Ivory Coast beans for October-December delivery were mostly quoted at 65 pounds over London with offers in a range between 60 to 70 pounds over London.
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