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Callebaut flags 'high' cocoa grind margins, as demand revives

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Barry Callebaut underlined the elevated level of cocoa grinding margins, driven by "tight supply" of processing products besides weak bean prices, at a time when it had achieved higher-than-expected sales too.

The Swiss-based group, the world's biggest chocolate and cocoa product maker, said that the so-called "combined ratio" - the value of the two main processing products, butter and powder, compared with the price of the raw beans – had hit 3.5.

The "high" figure, up from a 3.12 a year ago, reflected "tight supply" of the processing products and "historically low cocoa bean prices", with New York futures, at $1,842 a tonne on Thursday for September delivery, remaining not far above a near-10-year lows of $1,756 a tonne reached in April.

"Very favourable weather conditions in the two main cocoa growing countries, Côte d'Ivoire and Ghana, and therefore a good crop resulting in a surplus, were the main fundamental drivers for the [cocoa] price drop," Barry Callebaut said.

'Strong grind'

The strong combined ratio reflected in particular strength in prices of cocoa butter, credited with giving chocolate its melt in the mouth quality, rather than the powder used to flavour the likes of drinks and biscuits.

This dynamic reflects indeed moves in other sectors, with fat premiums having risen sharply in the global dairy and US meat markets too.

Other commentators too have flagged the elevated combined ratio, with soft commodities analyst Judith Ganes-Chase earlier this week noting that "the price ratio of cocoa butter and powder combined compared to cocoa beans remains at historically high levels".

She added that "this should encourage strong grind" activity by cocoa processors to exploit the widened margin, flagging expectations that the quarterly round of industry bean processing data, for the April-to-June period, should prove "fairly good".

Data so far has shown the Western European grind up 2.1% year on year for the quarter, and that in Côte d'Ivoire up 14% at 389,000 tonnes for the October-to-June period.

'Bounced back'

The rises are coming at a time of some recovery in demand for chocolate too, with Barry Callebaut noting data from Nielsen showing that while the global market was down 0.9% since August last year by volume, it had "recently bounced back with a growth of 2.3%" for the February-to-April period.

The European market had returned to growth of 0.9% for the February-to-April period, while that in the Americas "rebounded" to show 4.7% growth.

Still, Barry Callebaut, which has tapped increasingly into gourmet chocolate markets to escape the pressure on consumer brands from a quest for healthier snacks, outpaced world growth, reporting an increase of 5.5% in volumes, for February-to-April.

That was ahead of market forecasts for 4.7% expansion

Revenues for the August-to-April period were up 3.7% at SFr5.19bn, some SFr50m ahead of analysts' expectations.

Nonetheless, Barry Callebaut shares lost early gains to stand down 0.7% at SFr1332 in lunchtime deals.

By Mike Verdin

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