By Isis Almeida - Nov 2,
2011 10:15 AM ET
Butter Seen Falling Through Christmas as World Glut
Cocoa butter, used to make chocolate, will trade 12
percent to 15 percent below an August estimate as pre-Christmas
demand is too low to ease a world glut caused by increased
grindings, a Bloomberg survey shows.
The cocoa butter price in
Europe will be 0.95 to 1.1 times the value of
the beans traded in London from now until the
end of the year, according to the median in a
Bloomberg survey of eight traders, brokers and
analysts. That compares with a ratio of 1.08 to
1.3 expected in an August Bloomberg survey. The
ratio is considered an indication of chocolate
current stocks of cocoa butter are much higher
than the world demand needs it to be,” said Javier
Almela, chief purchasing officer at holding company
Natra SA in Valencia, Spain, which buys almost
40,000 metric tons of cocoa a year. “Demand for
butter ahead of Christmas didn’t pick up and I’d
be surprised if it did now, as most of the chocolate
that will hit the stores for the festive season
needs to be in production already.”
Cocoa butter was 1,915 euros (1,654 pounds) a ton yesterday,
or a ratio of 1.01, according to data on the Hamburg Cocoa
& Commodity Office GmbH website. Cocoa for December
delivery was 1,629 pounds ($2,607) a ton on NYSE Liffe
in London yesterday.
European cocoa usage rose 14 percent in the third quarter
to the highest since at least 1999, according to data
from the European Cocoa Association. In North America,
bean processing gained 3.4 percent over the same period,
according to the National Confectioners Association.
Rising global grindings are adding to a glut of cocoa
butter, which accounts for as much as 20 percent of a
chocolate bar, at a time demand for chocolate in Europe
and in the U.S. is stagnant, according to Shawn Hackett,
president of Boyton Beach, Florida-based Hackett Financial
Cocoa butter inventories may be as much as 150,000 metric
tons, or 15 percent of global butter output, according
to Steven Haws, founder of Commodities Risk Analysis LC,
a cocoa research company based in New York.
“There only are estimates from incomplete information
and casual assessments from experienced market participants,”
Haws said by e-mail on Oct. 26. “Those estimates and assessments
that I know generally place worldwide butter stocks at
125,000 to 150,000 metric tons. I think that the amount
When cocoa beans are ground, 80 percent is transformed
into cocoa liquor, which is then processed into cocoa
powder and cocoa butter, Barry Callebaut AG (BARN), the
world’s largest maker of bulk chocolate, said in a presentation
on its website. About 46 percent of the liquor becomes
butter and the rest is made into powder, the company said.
An increase in cocoa butter stockpiles may pressure bean
prices, as the futures market is used as a hedging instrument
for cocoa butter, according to Rabobank International.
“High butter stocks suggest that there has been selling
of the futures to hedge the price,” said Keith Flury,
an analyst at the bank in London.
Grinding cocoa is still attractive even with butter ratios
falling, as demand for powder continues to be strong,
Hackett said. The average cocoa butter ratio in the Netherlands
was 1.4 last year and 1.83 in 2009, data on Bloomberg
show. Powder is used in chocolate-based products such
as ice cream and cereal.
Processors’ profitability is measured by the combined
cocoa ratio, which is the price of powder plus the price
of butter divided by the price of beans. If the ratio
is above 3.2, grinders are making a profit, according
“Current levels of the combined ratio remain very attractive
near 3.6,” he wrote in a report e-mailed Oct. 30. “So
long as demand for cocoa powder remains strong, grinders
will continue to buy more beans.”
Demand for cocoa powder has been driven by developing
countries, especially in Asia, said Sholom Sanik, an analyst
at Toronto-based Friedberg Mercantile Group Ltd.
“Whatever significant growth there is in chocolate consumption
is to be found in developing countries, which generally
use a much higher ratio of powder to butter in manufacturing
chocolate,” he said in a report on Sept. 6.
Cocoa butter use fell after the global economic recession
in 2008, Marex Spectron Group Ltd. said in a report on
July 6. Chocolate sales in Western Europe fell 6.6 percent
to about $35.7 billion in 2009, according to data from
consumer research company Euromonitor.
Consumption of powder-based products is usually less sensitive
to cocoa prices as they contain relatively low amounts
of cocoa, according to the International Cocoa Organization.
Powder usually accounts for 3 to 10 percent of the weight
of a product, CRA’s Haws said.