Analysis: Indonesia's cup of cocoa woes could cheer world market
Oct 2, 2011, 6:24 p.m.
By Lewa Pardomuan and Michael Taylor
SINGAPORE/JAKARTA (Reuters) - A plunge in Indonesia's cocoa exports spotlights a flagging battle against disease and adverse weather, but the country's supply disruptions could allay fears of another global surplus and stem a seven-month slide in prices.
Although the outlook for world grindings may be clouded by the threat of recession, shrinking output in third-largest cocoa producer Indonesia will help balance the market in the next crop year after supply exceeded demand by 450,000 tons this year.
"Indonesia is clearly the one bullish point that we expect in the cocoa market," said Kona Haque, a commodity strategist at Macquarie Bank in London.
"Everything else right now is slightly on the bearish side, including grindings demand, which is probably going to be weaker than expected, and equally West African production could be higher than expected."
Indonesia launched a $350 million program in 2009 to boost production to more than 600,000 tons within 4 to 5 years, but it has yet to show results, with bad weather, growers' failure to follow advice on planting techniques and mismanagement working against the campaign.
Instead of rising, output is likely to plunge more than 30 percent to around 400,000 tons this year, but that will be enough to meet demand from the Indonesia's thriving grinding sector.
"DIABOLICAL" WET WEATHER
Wet weather wreaked havoc on the crop this year and brought back the Vascular-streak Dieback (VSD) disease to plantations across the main growing island of Sulawesi, killing trees and curbing exports since at least March.
"The fact that Indonesia is struggling is a very supportive factor. VSD is a killer. There is no cure for it, you can't spray -- the only thing they can do is cut down the trees and re-plant," said Gary Mead, editor at WorldCrops.
"We might be in a structural period where Indonesia just gets a lot of rainfall for the next few years, and that would be pretty diabolical for the cocoa sector."
The International Cocoa Organization expects the cocoa market to be in balance or possibly see a small surplus in the next crop year to September 2012 -- bucking the market consensus view of a small deficit.
The ICCO estimated a surplus of 325,000 tons in the crop year ending this month -- a bearish factor which caused cocoa futures to fall from a 32-year high at $3,775 a ton in March to current levels around $2,700.
Commodity trader Olam International
But supply constraints in Indonesia, which may last through next year if erratic weather persists, could force traditional buyers such as Malaysia, the United States and Brazil to turn to West Africa, where beans are plentiful after a bumper crop, and ease supply there.
Indonesia's falling output had contributed to a global supply shortage in the crop year to September 2009.
Cocoa exports from Sulawesi tumbled 76.7 percent in August to 8,421.50 tons on the year, and the country's total shipments could fall 40 percent to 200,000 tons in 2011, their lowest in at least seven years.
- One out of every six health care dollars is spent on treating ...
- In searching for investment options, would you rather have—high return or low ...
- In their early 70s, Koert and Rebecca Smith were looking to make ...
- At age 74, singer-songwriter Paul Williams is in better shape than he ...
- Below-zero temperatures in Iowa and the Beach Boys’ music don’t necessarily go ...