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Cocoa Butter Extends Rally on Low Grindings and Christmas Demand

Cocoa butter, used to make chocolate, extended a five-month rally in Europe with bean processors keeping grindings curbed just as demand increases before Christmas, said three traders involved in the sales.

The cost of cocoa butter relative to the price of beans on the NYSE Liffe exchange rose to a ratio of 1.85 to 1.9, said the traders, who declined to be identified because they aren’t authorized to speak to the media. The butter, which accounts for as much as 20 percent of the weight of a chocolate bar, was at 1.66 to 1.75 times the bean futures price on Sept. 14.

Cocoa butter ratios have been rising since May, according to data from KnowledgeCharts, a unit of Bethlehem, Pennsylvania-based researcher Commodities Risk Analysis LC. The last time the ratio in Europe was above 1.9 was in November 2009, the data showed. Demand for the by-product of bean grinding rises before Christmas as chocolate sales gain.

Cocoa processors slowed their factories because of declining prices of cocoa powder, another by-product of bean grinding. Lower powder prices reduced their profitability, which is determined by the prices of powder and butter divided by that of beans. Cocoa powder in Europe was at 3,002 euros ($3,871) a metric ton on Oct. 5, down 14 percent this year, KnowledgeCharts data showed.

European cocoa grinding may fall 15 percent in the three months ended Sept. 30 compared with a year earlier, according to a Bloomberg survey of 10 traders published Aug. 24. The European Cocoa Association will release the grind data on Oct. 16 after some participants delayed reporting, the Brussels-based group said on Oct. 5. Processing fell 18 percent in Europe in the second quarter.

When cocoa beans are ground, about 80 percent is turned into cocoa liquor, which is then processed into powder and butter, according to Barry Callebaut AG, the world’s largest bulk chocolate maker.

Cocoa for March delivery was down 1.6 percent to 1,543 pounds ($2,470) a ton by 5:09 p.m. on NYSE Liffe in London.

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