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ASIA COCOA-Butter ratios hit 14-month low on high prices, stocks

By Fergus Jensen

JAKARTA, Oct 21 (Reuters) - Asian cocoa butter ratios are trading at their lowest in more than 14 months as the market faced pressure from high butter prices, high powder stocks and sluggish chocolate consumption, traders said.

Butter ratios, a key indicator of demand, were quoted as low as 2.2 times London futures , their lowest since early August 2013, although there were offers at 2.25 times. Two weeks ago, ratios stood at 2.28 to 2.35 times futures.

Cocoa beans are processed into roughly equal parts butter, which gives chocolate its smooth texture, and powder, which is used in cakes, biscuits and drinks. Grinders do not generally release data on the size of their powder stocks.

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Cocoa butter prices often move in the opposite direction to powder, as grinders seek to offset or balance their prices when either butter or powder prices are low.

Wavering demand has seen butter prices come off recent multi-month highs above $8,000 a tonne to around $7,000, but this was still too expensive for many confectioners, traders said. As butter came down, powder prices were seen up slightly at between $1,700 and $2,000 a tonne.

"The problem right now is that futures prices are really high, so end users don't want to buy if it's not within their budget," said a Singapore-based trader adding that often cocoa butter was sold up to a year in advance.

"They are buying just to cover, they are not buying forward. Everything is in small quantities and butter (prices) are not really moving."

Cocoa butter prices may face pressure from low prices of competing products such as palm-oil based substitutes, the trader said, as palm prices not far off five-year lows.

"A lot of confectioners would seriously consider reducing the content of cocoa butter."

Another Singapore trader said the key driver affecting butter and powder prices was chocolate consumption and noted chocolate consumption has been "slackish to down". He referred to recent statements from top chocolate producers Mars, Hershey and Nestle.

U.S. Hershey said on Friday U.S. cocoa stocks are high enough to prevent any disruption to supplies well into 2015, playing down concerns that Ebola in West Africa could have an impact on the cocoa trade.

Cocoa processing in North America jumped almost 5 percent to a record high in the third quarter, data on Thursday showed, beating expectations amid concerns about dwindling demand as bean futures prices soar to multi-year highs.

Powder purchases from the food and beverage industries in Asia have yet to catch up with a jump in output as Indonesia overtakes Malaysia as Asia's largest grinder, resulting in an oversupplied market and pushing down powder prices.

"There's a lot of stocks lying around and there's a lot of selling pressure because people have a lot of capacity to sell," the trader said.

"If everyone continues to grind full at close to budget then this high inventory situation will remain for a long long time."

Indonesia's grinding capacity is expected to jump 85 percent to 600,000 tonnes by the end of 2014, boosted by new plants for firms such as Cargill, Barry Callebaut, and Malaysian Guan Chong Berhard.

However, recent figures show cocoa processing in Malaysia fell 13.7 percent from a year earlier to 61,428 tonnes in the third quarter, the Malaysian Cocoa Board said on Tuesday, reflecting slow demand and rising costs.

Indonesia, the world's third biggest producer of cocoa beans began harvesting this month in the country's top growing region, although output remained depressed, according to the Indonesia Cocoa Association (ASKINDO).

"It is still minimal," ASKINDO deputy chairman for South Sulawesi Dakhri Sanusi told Reuters.

This year Indonesia's cocoa bean output may fall to around 425,000 tonnes, its lowest since 2006, as farmers struggle to contain an increase of crop diseases. This was expected to boost Indonesia's bean imports by 300 percent. (Reporting by Fergus Jensen, editing by David Evans)