UPDATE 1-ICCO cuts cocoa grindings by 10 pct in Asia,Oceania

SINGAPORE, March 10 - Cocoa grindings are forecast to fall 10 percent to 719,100 tonnes in Asia and Oceania in the crop year to September due to a global economic slump, led by declines in Malaysia and Indonesia, the International Cocoa Organization said on Tuesday. On production, the ICCO estimated Indonesia's cocoa output to rise to 510,000 tonnes in 2008/09 (Oct-Sept) from 495,000 tonnes in the previous year. Indonesia is the world's third-largest cocoa producer after Ivory Coast and Ghana.

Grindings in Asia and Oceania, which include China, Israel, South Korea, Sri Lanka, Thailand and Turkey, account for about 20 percent of global grindings estimated at 3.7 million tonnes.

"Cocoa processing companies located in the Asia and Oceania region are expected to suffer severely from the economic downturn," the ICCO said in its quarterly statistical report emailed to Reuters.

"Cocoa processing activity is forecast to decline by over 10 percent in Asia and Oceania to 719,000 tonnes..."

Malaysia, which is Asia's largest grinder, was estimated to process 290,000 tonnes of beans, down from 331,000 tonnes in 2007/08. Grindings in Indonesia, the region's second-largest grinder, was likely to fall 20 percent to 150,000 tonnes.

Dealers said butter ratios were at their lowest levels in five years due to slumping demand for the key ingredient for making chocolates after factories slashed purchases.

Most active May contract in New York cocoa futures fell to a one-week low at $2,220 a tonne on Monday, not far from a three-month low of $2,198 hit last week due to fears of falling demand for beans.

The ICCO said it had revised up Indonesia's beans output in the 2007/08 crop year to 495,000 tonnes from 480,000 tonnes and pegged this year's production at 510,000 tonnes.

"During the previous season, Indonesia'scocoa production suffered from the devastating Vascular-Streak Dieback (VSD) disease which had spread in Sulawesi.

"Thanks to increasing production in new areas, cocoa output may slightly recover, reaching 510,000 tonnes in 2008/09. However a high degree of uncertainty remains on this short-term outlook."

The VSD disease attacks leaves, branches and trunks and had spreading in the provinces of South, Central and Southeast Sulawesi, which account for 75 percent of Indonesia's cocoa output, said dealers.

Last week, the ICCO forecast a wider global cocoa deficit of 193,000 tonnes in 2008/09 with a drop in production only partially offset by lower grindings.

Global production was seen falling in 2008/09 by 5.0 percent to 3.52 million tonnes from 3.71 million with world grindings seen down 2.1 percent at 3.68 million tonnes.