Asia's cocoa butter ratios hit their lowest in 21 months as slow demand continued to push prices below cost for grinders, who are waiting for excess stocks of both butter and powder to dry up and trigger a reversal, traders said. The cocoa market is unusually quiet despite a forecast drop in grindings this quarter, traders said, referring to recent price increases by major confectioners such as Hershey Co that had hit demand for chocolate.
"The world is not eating enough chocolate," one trader said, noting that they were waiting to see December-January consumption data. Buyers, meanwhile, are betting that the supply surplus would push cocoa powder and butter prices lower. "There's too much supply versus demand. The (confectionery) industry is waiting for lower ratios," another trader told Reuters, noting that butter ratios were "generally flat."
Butter ratios, a key indicator of demand, were quoted at between 1.95 and 2.0 times London futures, down from between 2.07 and 2.1 times in December, their lowest level since April 2013. Cocoa processing in Asia dropped to its weakest level in at least three years in the fourth quarter of 2014, amid poor demand that is likely to further drag on global bean prices.
"With all the reduction in grinding, at some point butter stocks will be tight and then ratios can rise, but no one knows when," said the second trader. Grinders do not reveal the size of their butter or powder stocks. Other traders attributed the recent lull partly to the approaching Chinese New Year holiday, which falls on February 19. "It's like a holiday season. The first quarter grind will be low as well. It's supposed to be busier," a second trader said.
Physical stocks of powder, used in cakes, biscuits and drinks, are still high, traders said, quoting prices between $1,800 and $2,100 per tonne, up from the $1,700 to $1,900 level seen in December. "I believe it will take at least a year of slower grinding and selling of stocks to reduce overall stocks. It's very much a timing game." Exports of cocoa beans from Indonesia's main growing island of Sulawesi jumped 207 percent to 2,336.12 tonnes in January from 760 tonnes a year earlier, industry data showed on Monday. Indonesia, the world's third-biggest cocoa bean producer, is expected to launch a $95 million scheme to help double output, an industry group said in December.
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