El Nino Causing Lower Coffee and Crude Palm Oil Production in Indonesia
Apart from the Indonesian rupiah which has hit its weakest level since the Asian Financial Crisis 17 years ago, the ongoing El Nino (the weather phenomenon that brings drought to Southeast Asia) may be the strongest since 1997-1998. This means that output of agricultural commodities is to decline (but which should have a positive impact on prices). Coffee production in Indonesia is estimated to fall by seven percent to 581,000 metric tons in 2016 from an estimated 625,000 tons this year.
Australia's Bureau of Meteorology believes that El Nino is to peak around the end of 2015, while Carlos Mera, analyst at Rabobank International, said El Nino-related drought will specifically impact on coffee plantation areas in South Sumatra, one of Indonesia's key coffee growing regions. Traders said the situation has already turned critical as without rain the leaves will soon dry out and fall off. It is therefore crucial to see rain in October. If not, next year's coffee harvest in Indonesia will experience a sharper fall than seven percent. In Central America El Nino has already caused crop losses.
Indonesia, Southeast Asia's largest economy, is the world's fourth-largest coffee producer and third-largest robusta beans grower. The provinces of South Sumatra, Bengkulu and Lampung (all on the island of Sumatra) account for approximately 75 percent of Indonesia's total coffee output. These three provinces produce mainly robusta beans.
The world saw a 6.4 million bags shortage of coffee beans in the 2014-2015 harvest season (resulting in steeply rising coffee prices last year) as emerging markets have been increasingly consuming coffee, while output has been curtailed by weather-related causes. In the 2015-2016 season the coffee shortage may fall to 3.5 million bags. Despite this shortage, coffee prices have declined in 2015 as Brazil's currency has depreciated severely against the US dollar. Coffee futures have fallen about 24 percent so far this year:
Indonesian Coffee Production & Export:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015¹ | |
| National Production (in ton) |
698,016 | 682,690 | 686,921 | 633,991 | 748,109 | 740,000 | 711,513 | 625,000 |
| National Export (in ton) |
491,335 | 518,122 | 440,241 | 353,698 | 520,275 | 460,000 | 382,774 | 350,000 |
| Value of Export (in million US dollar) |
1,077.7 | 882.1 | 855.2 | 1,085.9 | 1,534.1 |
¹ indicates forecast
Source: Asosiasi Eksportir dan Industri Kopi Indonesia (AEKI)
Crude Palm Oil
Meanwhile, crude palm oil (CPO) entered a bull market after being in a bear market one month earlier (when prices fell to a six-year low) due to concerns that El Nino will impact heavily on H1-2016 palm oil production in the world's top growers Indonesia and Malaysia. Moreover, Indonesia's rupiah and Malaysia's ringgit have depreciated to 17-year lows against the greenback hence aiding the rally.
Indonesian Palm Oil Production and Export:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015¹ | |
| Production (million metric tons) |
19.2 | 19.4 | 21.8 | 23.5 | 26.5 | 27.0 | 31.0 | 31.5 |
| Export (million metric tons) |
15.1 | 17.1 | 17.1 | 17.6 | 18.2 | 21.2 | 20.0 | 19.5 |
| Export (in USD billion) |
15.6 | 10.0 | 16.4 | 20.2 | 21.6 | 19.0 | 21.0 |
¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture
Further Reading:
• Overview of the Coffee Industry in Indonesia
• Overview of the Palm Oil Industry in Indonesia
• Overview of the Asian Financial Crisis