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
(million metric tons)
  19.2   19.4   21.8   23.5   26.5    27.0    31.0    31.5
(million metric tons)
  15.1   17.1   17.1   17.6   18.2    21.2    20.0    19.5
(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