Europe's cocoa butter price ratios up, bean differentials weak

Cocoa butter price ratios rose in Europe's cash market this week on steady demand, while bean differentials declined as buyers held back on expectations that large West African crops later this year will lower prices, traders said on Friday. Price ratios for August/December 2013 delivery cocoa butter rose to 2.30 times London cocoa bean contracts against 2.25-2.26 times London last week.
"Cocoa butter is in demand as ratios seem to have passed their weakest point this summer and continue on an upward trend," one trader said. "This is encouraging purchasing of short cover." Nearby delivery butter ratios have risen from 2.25 times nearby London futures at the beginning of July, 1.98 in June and 1.89 times London in April. "Rising Asian butter ratios were also adding support to Europe as alternative supplies are also getting more expensive," a trader said.
Asian butter ratios stayed at a multi-year peak this week with European traders reported to be leading buyers, Asian dealers said. Weak cocoa powder prices were encouraging cocoa grinders to raise butter ratios to ensure their overall earnings remain steady, traders said. When cocoa beans are ground they produce roughly equal parts powder and butter. Powder is mostly used to flavour products including ice cream, biscuits and cakes, while butter is what makes chocolate melt in the mouth.
Demand for cocoa beans was weak, with only small volumes changing hands, traders said. Differentials for Ivory Coast new crop beans for December delivery were down 5 pounds on the week at 65 pounds over the London December contact. Differentials for spot delivery fell 15 pounds to 50 pounds over nearby London. "I think there is disagreement about the outlook for the Ivory Coast's crop, with trading houses and consumers expecting a considerably larger harvest and so more ample global supplies than some other more pessimistic recent crop forecasts," another trader said.
Ivory Coast, the world's top cocoa producer, is expected to produce a median 1.530 million tonnes of cocoa in the 2013/14 crop year which runs from October to September, well above the 1.405 million tonnes estimated in the year to September 2013, a Reuters poll showed. Local Ivory Coast official sources put the upcoming crop at 1.4 million tonnes.