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February 01, 2011

Cocoa butter prices rise on Ivorian woes

Prices of cocoa butter, a key ingredient for making chocolate, rose in Asia on concern that Ivory Coast growers may honour a call for a ban on bean exports, while high prices attracted more selling from Indonesia, dealers said on January 25.

New York cocoa futures rallied to near their strongest in 30 years after Alassane Ouattara, internationally recognised as the victor of a November 28 election in the Ivory Coast, declared a month-long export ban to stop revenues reaching his rival for the country’s presidency.

“Butter ratios did improve a bit because most chocolate manufacturers want to buy. If the situation in the Ivory Coast is prolonged, people are worried butter will be affected because there are grinders in the Ivory Coast too,” said a dealer in Singapore.

“Whether the ratio will sustain, it’s a separate issue. These days, not many chocolate makers carry good volumes in their stocks.”

Butter ratios, a key indicator of demand, were quoted by Malaysian and Indonesian grinders at 1,35 to 1,45 times London futures, up from 1,30 times in December. The ratio had been stagnant in the past month due to ample supply.

Cocoa beans are ground to get butter and cake, which is later processed into powder. Butter is also used to make spreads, soaps and cosmetics, while powder is used in chocolate making, beverages and ice cream.

Indonesia is the world’s third-largest cocoa bean producer after the Ivory Coast and Ghana. Only about 10% of Indonesian cocoa is fermented, and the rest is the unfermented beans shunned by European grinders.

High bean prices in both New York and London futures attracted more selling from Indonesia, although the quantity was limited after the mid-crop ended in December, grinders said.

Beans from Indonesia’s main growing island of Sulawesi were offered at a discount of between $300 and $380 to New York’s March contract, smaller than $500 quoted a month ago, due to tight supply.

“The ban in Ivory coast has pushed up New York market and eventually increased local prices. But currently it is the low-season time,” said a dealer in Makassar, the provincial capital of South Sulawesi.

“No matter how high the demand is, we can’t fulfil it unless the ban stay until April,” he said.

The main harvest in Sulawesi will start in April and there are concerns it’s going to be a poor crop due to a prolonged rainy season.

On the other hand, grinders said if export ban persists in Ivory Coast, grinders in Europe could consider buying Indonesian beans. The unfermented Indonesian cocoa beans are mostly shipped to the United States, Brazil, Malaysia and Singapore. European grinders prefer fermented, high-quality cocoa beans from Africa.

“If the situation in Ivory Coast drags on, and if the country goes into turmoil and all that, then people will have to reassess the situation,” said another dealer in Singapore, adding the European grinders could eventually chase better-quality Indonesian beans.

Indonesia’s cocoa output may fall by an estimated 6,5% to 500 000 tonnes in the crop year October 2010/September 2011 due to a pod-borer pest attack and a fungal disease, the International Cocoa Organisation said last week.

New York’s March cocoa contract on ICE Futures soared $128, or 4%, to finish at $3 312 per tonne on January 24, the highest settlement for the spot contract since January 2010.


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