Cocoa Harvest in Indonesia May Decline to Decade Low on Rain

Feb 07, 2014 10:53 am ET

(Updates prices in fifth paragraph.)

Feb. 7 (Bloomberg) -- Cocoa output from Indonesia will probably drop to the lowest in a decade as rains in the third- biggest grower hurt flowering and delay the harvest, curbing supplies of the chocolate ingredient amid a global shortage.

Production may decline to 400,000 metric tons this year from 450,000 tons in 2013, according to Zulhefi Sikumbang, chairman of the Indonesian Cocoa Association. That would be the smallest crop since 2004, association data show. Heavy rains are forecast in Sulawesi, the main growing area, for this month and March, he said in an interview today.

Cocoa in New York rallied today to the highest level since September 2011 as global demand outstripped supplies, spurred by record sales of chocolate confectionery. Cocoa is the only agricultural market that has a structural shortage, according to Macquarie Group Ltd., which forecasts a deficit this year.

“Flowers have grown but many were knocked off the trees by the rain,” Sikumbang said by phone from Jakarta, forecasting that the harvest season will be delayed to July from April or May. Pests such as cocoa-pod borer and fungus could spread if rain persists, reducing bean count and quality, he said.

Cocoa on ICE Futures U.S. in New York climbed 8.4 percent this year, while the Standard & Poor’s GSCI gauge of commodities dropped 0.3 percent and global equities as tracked by the MSCI All-Country World Index fell 3.9 percent. Most-active futures rose today to $2,937 a ton, the highest since Sept. 8, 2011. Last year, prices advanced 21 percent, the biggest gainer in the S&P GSCI after U.S. natural gas.

Harvest Delays

“It’s possible that the harvest will be delayed this year, if heavy rains disrupt flowering but whether that may reduce production, it still needs to be seen,” said Piter Jasman, head of the Indonesian Cocoa Industry Association, a grinders’ group. “Maybe in April we will have a clearer outlook.”

World demand will outstrip supply by 105,000 tons in the year started Oct. 1, followed by a shortage of 74,000 tons next season, Macquarie estimates. Global stockpiles fell 17 percent in the 12 months that ended Sept. 30, according to a document from the London-based International Cocoa Organization.

Processing in Asia, an indication of demand, increased 10 percent in the fourth quarter from a year earlier, the Singapore-based Cocoa Association of Asia said Jan. 20. Tighter global cocoa supplies will raise costs for food makers including Nestle SA, Barry Callebaut AG and Lindt & Spruengli AG.

Sulawesi will see medium- to very-high-intensity rain of 150 millimeters to 500 millimeters this month and in March, according to a model from the Jakarta-based Meteorology, Climatology and Geophysics Agency. South Sulawesi is forecast to have the heaviest showers, said Indonesia’s state weather office.

Cocoa accounts for about 10 percent of the average price of a chocolate bar, the ICCO estimates. One ton of cocoa makes about 7,250 chocolate bars of 100-grams (3.5 ounces) each, according to Commodity Risk Analysis.

--Editors: Jake Lloyd-Smith, James Poole