Cocoa prices surge on New York rally

Cocoa prices surge on New York rally

KUALA LUMPUR (Reuter): Malaysian cocoa prices soared yesterday, boosted by a surge in New York prices on Friday to eight-year highs, traders said.

They said falling domestic production and steady demand for cocoa beans were also helping prices.

Cocoa prices in New York soared on Friday on concerns about next season's crop in the Ivory Coast and a developing El Nino global weather pattern.

Some growing areas in eastern Sabah state on Borneo island have been experiencing dry weather over the past three to four weeks, but traders said it was too early to tell whether this was because of the El Nino effect.

"We have not seen rain in Tawau for at least three weeks now and this is going to affect flowering and fruit-setting," said an industry official in Tawau, Sabah's main growing area.

"But this could be a seasonal drought and nothing to do with El Nino," he said.

An official with the U.S. National Oceanic and Atmospheric Administration (NOAA) said last week that warm ocean temperatures off the western coast of South America had triggered an El Nino weather pattern that could have a major impact on crop production around the world.

El Nino results in drier, warmer weather.

The industry official in Tawau said it was too early to forecast the crop size for the year "but production for October- December certainly does not look promising."

Output in Sabah, Malaysia's largest cocoa producing state accounting for nearly 80 percent of the crop's national output, has already been affected by dry weather which is expected to slash Malaysia's usual mid-year cocoa harvest by 60 percent.

Growers were expecting a fall in production this year to below 100,000 tons against 122,000 tons in 1996.

Falling output has been expected in Malaysia as farmers switch to oil palm, a more profitable crop.

Traders said domestic prices would continue to be influenced largely by developments in New York and London markets as the supply/demand situation in Malaysia was very much predictable.

Malaysia has been relying on imports of cocoa beans from Indonesia as domestic production is not enough to meet demand from the 11 active grinders in the country.

On Monday, the Malaysian Cocoa Board quoted Standard Malaysian Cocoa (SMC) Grade 1A out of Tawau at an average of 3,870 ringgit a ton and Grade 1B, also out of Tawau, at an average of 3,745 ringgit.

Compared to Friday, the 1A was up 190 ringgit and 1B up 205 ringgit.

Malaysian traders said they expected cocoa prices in London to open five to 10 sterling higher on Monday. On Friday, September cocoa futures hit their highest level in a year. The contract closed 31 stg up at 1,127.