Asia Cocoa-Butter ratios near 16-month low on high stocks

By Fergus Jensen

JAKARTA, Nov 7 (Reuters) - Asian cocoa butter ratios fell more to their lowest in nearly 16 months as sellers continued to face pressure from high powder stocks and weak demand, traders said, despite prices already being below break even point for grinders.

Butter ratios, a key indicator of demand, were quoted as low as 2.1 times London futures , their lowest since July 2013, although offers were seen up to 2.2 times. Two weeks ago, ratios stood at between 2.2 to 2.25 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.

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.

"The market is very weak in terms of product prices," a trader told Reuters, adding that powder prices had improved slightly this week to between $1,750 and $1,850 a tonne, up from $1,600 a tonne last week.

"Of course there is still a lot of resistance from customers to pay up."

Grinders often pair the sales of butter and powder in "combo" or combination deals to prevent a build-up in stocks. Grinders will then sell butter at a fixed, but smaller, ratio on condition the buyer also takes some powder.

Combo ratios, formed by adding together the ratios for butter and powder, were quoted as low as 2.6 times London futures this week but up to 2.9 times, well below the break even point of between 2.9 and 3.05.

"We see cocoa grinders really wanting to increase prices - to account for the fact that the combo ratio is not making them money," a second trader said, adding that prices would only likely begin to recover when grinders stopped producing.

"Somebody will have to stop running their machines - they will have down time until the market fully absorbs all the product, and then prices will come back."

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.

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.

Exports of cocoa beans from Indonesia's main growing regions of Sulawesi and Lampung dropped 36 percent and 88 percent, respectively in October from a year earlier, as more beans were take by domestic grinders for processing.

The archipelago is aiming become the world's top cocoa bean producer, newly appointed Indonesian president Joko Widodo said in Sulawesi on Thursday, as quoted by domestic media, pledging to spend 1.2 trillion rupiah ($98.60 million) to rejuvenate and rehabilitate cocoa plantations.

"We hope that in the coming years, we will surpass Ivory Coast and Ghana (cocoa producers), and so, the farmers must also work hard," Widodod said as quoted by Antara state newswire.

Top industrial chocolate producer Barry Callebaut said cocoa prices were now coming down to more realistic levels after having been pushed up by concerns over the ebola virus affecting output.

New York March cocoa was little changed on Friday, settling up $1 at $2,871 a tonne, while London March cocoa futures gained 16 pounds, or 0.9 percent, to settle at 1,894 pounds per tonne. (1 US dollar = 0.6324 British pounds) (1 US dollar = 12,170 rupiah) (Reporting by Fergus Jensen, editing by William Hardy)