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Cocoa grinders compete for butter while powder supplies abound
June 17, 2014 / 3:16 AM / 4 years ago

Cocoa grinders compete for butter while powder supplies abound

* Chocolate makers rush to buy butter from rivals

* Cocoa butter ratios hit multi-month highs

* Some bean processors cut back on grindings

By Marcy Nicholson and Lewa Pardomuan

NEW YORK/SINGAPORE, June 16 (Reuters) - Chocolate makers including Barry Callebaut are racing to buy cocoa butter from their competitors this summer, pushing price premiums to their highest in months.

The scramble for butter reflects a growing imbalance in the market for the two main substances produced from grinding a cocoa bean: butter, which gives chocolate its melt-in-the-mouth texture, and powder that is used in cakes, biscuits and drinks.

Years of rapid expansion in the cocoa-grinding industry have given rise to a global abundance of powder stocks, driving down prices, even while the need for premium-fetching butter expands. Now, that trend is reversing: some processors are cutting back on grinding their own beans and buying instead on the open market.

Barry Callebaut, the world’s biggest maker of industrial chocolate, recently bought butter in Europe for its chocolate needs, according to a source familiar with the purchases.

“As far as I know, they still need butter for next year, so they are hedging some of the volumes, small volumes,” an Asian-based industry source said, referring to Barry Callebaut.

A Barry Callebaut spokesman declined to comment.

Barry Callebaut is not alone. Other large grinders are also in the market as some reduce their own output, sources say.

“All the big grinders have been in the market. It’s been very active,” one U.S. trader said.

In Asia, the price of cocoa butter has risen to 2.50 times the cocoa futures price in London <0#LCC:>, the highest ratio since December and up from 2.40 a month ago. In the United States, it is at a five-month high around 2.70 times the ICE Futures U.S. futures contract, versus 2.65 a month prior, and in Europe is around 2.60 times the London contract, a six-month peak CCAFR-BUTNE-P1.

Cocoa futures are at the highest levels in nearly three years, lifting nearby butter prices above $8,400 per tonne against the spot contract in the United States and $8,600 per tonne in Europe.


Butter demand has been strong since the second half of 2013, and grinders have been feeding that market -- in the process topping up stocks of powder.

Grinders do not reveal the size of their stocks and chocolate makers had been waiting for the butter ratio to drop after Easter celebrations, but further gains caught them by surprise, prompting the recent round of purchases on fear they will rise even higher.

“We have spoken directly to Asian processors ... who have confirmed slowdown in pressing,” said one industry source.

Asia Pacific is the No. 3 region for overall cocoa consumption but the biggest for powder, having consumed a quarter of the world’s volumes in 2012.

In 2014, Asian consumption of both powder and butter are set to rise by more than 4 percent each, whereas in the United States, butter consumption is forecast to inch lower as chocolate demand falls on discretionary buying and a switch to healthier foods, International Euromonitor data shows.

The readily available powder and apparent slow-down in Asian bean processing, with an estimated increased capacity of 200,000 tonnes, comes as international cocoa grinders go through with multi-million dollar expansions in Indonesia, the world’s third biggest cocoa producer and currently facing a bean shortfall.

Swiss-based Barry Callebaut bought Singapore’s Petra Foods Ltd’s cocoa business in 2013, and commodity giants such as U.S.-based Cargill and Malaysian cocoa group Guan Chong Berhard have set up operations there. Olam is set to start building a new plant.

“We are constantly in an oversupply situation,” said another industry source.

While many powder buyers in the United States have secured supplies through 2015 and are already shopping into 2016, those seeking immediately available butter can’t find a seller, traders said.

“Demand for butter is nearby, demand for powder is two years forward,” another U.S. trader said. (Editing by Jonathan Leff)

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