UPDATE 2-North America Q2 cocoa grind up 12 pct, above forecasts

Fri Jul 19, 2013 12:19am BST

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* North American Q2 cocoa grind jumps nearly 12 pct

* Higher cocoa grind marks third straight firm quarter

* Cocoa butter ratio seen rising with demand

By Marcy Nicholson

NEW YORK, July 18 (Reuters) - North American cocoa grindings jumped almost 12 percent in the second quarter, the biggest rise in three years and more than expected, as chocolate makers continued to replenish stocks and processed beans to meet rising overseas demand, dealers said.

Grindings, an indicator of demand for chocolate, reached 126,044 tonnes in the three months to June, up a whopping 11.77 percent from the second quarter of 2012, data from the National Confectioners Association (NCA) showed on Thursday.

This was the biggest quarterly jump since grindings surged 12.07 percent to 117,657 tonnes in the second quarter of 2010. The latest data was more than double what many market participants had expected.

Coming after Asia and Europe, two larger regions to report numbers, showed growth earlier this week, Thursday's data will reinforce optimism that the global cocoa market is recovering from slow demand growth and is likely to support prices on Friday, dealers said.

"Consumption is up, without a doubt, and restocking of semi-finished products is up," said one U.S. veteran cocoa dealer.

Chocolate makers used up much of the stock they had built up last year when demand remained lackluster.

Two other dealers said that some large U.S. manufacturers have increased their shipments of chocolate to Asia and Europe.

Estimates ahead of the data were for a rise of between 2 percent and 5 percent as analysts saw rejuvenated demand for butter and inventory restocking.

The third straight firm quarter follows a particularly weak second quarter last year, when North American cocoa grinding dropped by nearly 10 percent as processors ate through a glut of cocoa butter.

North American cocoa processing has outperformed the larger European and Asian regions for several straight quarters. In Asia, a growing appetite for chocolate treats has offset lackluster mature markets in recent years.

Earlier this week, Europe's second-quarter cocoa grind rose 6.1 percent year-over-year to 310,408 tonnes, at the upper end of expectations. In Asia, it rose 2 percent from the second quarter 2012 to 153,792 tonnes.

Another factor seen contributing to the unexpected surge in bean processing is the low cost of sugar, the sweetener that makes up roughly half of a chocolate bar's ingredients, which spurred chocolate makers to boost output, dealers said.

Raw sugar trading on ICE Futures U.S. tumbled to a three-year low of around 16 cents per lb in June on abundant supplies.

Cocoa prices were also volatile in the second quarter. The then-benchmark ICE futures contract rose 11.5 percent only to finish the period down about 1 percent at $2,163 per tonne.

On the larger Liffe market in London, the benchmark contract jumped about 7 percent before ending the quarter down 1.3 percent at 1,458 pounds per tonne.

COCOA BUTTER RATIO RISES

"In the U.S., there wasn't good availability of Asian butter, so manufacturers had to press (it) themselves, even if they didn't want to," one of the dealers said.

Rising demand helped lift the butter ratio to 2.4 on Thursday, placing its value around $5,630 per tonne, up from a ratio of 2.2 two weeks ago and sharply higher than the 1.0 ratio of just over a year ago, U.S. dealers said.

The ratio is a price that can change daily and is relative to that of the ICE benchmark cocoa bean futures contract. At a ratio of 2.4, the price of butter is more than double the cost of the benchmark contract.

When cocoa beans are processed, they produce roughly equal parts powder and butter. While butter is a key ingredient in chocolate bars, powder is used in treats such as cookies, energy bars, ice cream, coatings and drinks.

The aggregate number of plants reporting in the second quarter of 2013 was unchanged from a year ago at 17, the NCA data showed.

The North American data was collected from plants in Canada, the United States and Mexico. Survey respondents included chocolate makers Barry Callebaut USA, Hershey Co , Nestle Chocolate & Confections, ADM Cocoa and Mars Chocolate North America.

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