October Southeast Asian Market Report by Ross Ainsworth

11^th Edition : October 2014.

Key Points

• Prices generally steady for another month
• Western style abattoirs in Indonesia under pressure from very cheap imported Australian product
• Major Philippines abattoir closes
• AUD$ weakness helps offset rising Australian cattle prices

Note: Philippines price is very weak and is below the range of prices shown on the graph.

Indonesia  :  Slaughter Steers AUD $3.40 / kg liveweight

Once again the slaughter cattle prices remain steady despite a multitude of issues unfolding in the background. Many of these developments will begin to exert their influence in the next two to three months.

Critical issues during October :-

• President Joko Widodo has appointed his new Minister for Agriculture although we have little indication of his policy approach yet.
• The outgoing Minister and parliament passed a new law allowing imports of beef from Foot and Mouth Disease affected countries on the basis of Regional Freedom certification. Farming and veterinary lobby groups are mounting both political and legal campaigns to try to ensure that the President does not sign this legislation into law.
• The price of new feeder deliveries has risen sharply, in the order of 20% during the last two months and looks set to continue to rise during the northern Australian wet season. These expensive feeders will begin to emerge from the feedlots in January 2015 so importers will be doing everything they can to push their prices up by then to avoid some nasty losses.
• A number of ships including some of the larger vessels in the fleet have experienced problems ranging from fire to mechanical breakdowns. This will reduce shipping capacity significantly with the potential for serious disruption to deliveries for up to 2 to 3 months. When this is combined with difficult supply conditions in northern Australia and steeply rising feeder prices, the final number exported to Indonesia in Q4 is likely to be well below permit numbers issued.
• East Java remains off-limits for Australian imports driving record prices in the province with advice that large numbers of females continue to be slaughtered. It will be interesting to see how the new Agriculture Minister deals with this situation.
• Beef importers have once again been flooding the wet markets with product, some of which is being offered at very low prices. Aussie rumps have been seen in the wet markets at retail prices of as low as $7.50. The few western abattoirs operating in Indonesia can’t possibly compete with these prices.
• The recent Korban festival was a great opportunity for local cattle producers to sell their male stock for premium prices. Given the relatively small domestic herd and its low reproductive rate, the number of males suitable and available for religious festival sales is small, possibly less than 1 million head. As the Indonesian economy continues to grow at speed (GDP growth rate ~5%) and demand for slaughter males grows with it, it’s possible that the majority of locally born male slaughter cattle will be consumed during the two religious festivals of Ramadan/Lebaran and Korban.

Vietnam  :  Slaughter Steers AUD $4.03/ kg

Domestic prices remain steady while the currency has strengthened a little against the AUD$. Large volumes of box beef imports continue to enter Vietnam. The largest import volumes come from the USA, followed by India and Brazil with Australian imports in 4^thplace. While some of this enters China via the “grey” route it is very difficult to identify the actual volumes consumed locally and re-exported.

The domestic herds have also been enjoying a relatively disease free period with no recent Foot and Mouth Disease outbreaks. This could be a result of lower live imports from Cambodia and Laos as their cattle numbers are also at an all time low.

Vietnamese entrepreneurs are developing some major initiatives to shore up the numbers of domestic and regional breeding herds.

One large private company is in the process of establishing a number of projects for breeding beef and dairy cattle. The target numbers quoted are in the order of 230,000 head of breeders based in the highlands of Vietnam as well as neighbouring Cambodia and Laos.

A second company is planning a 45,000 head breeding project in three highland provinces of Vietnam with the first imports of breeders expected in mid 2015.

These initiatives could result in some large breeder orders from Australia.  By breeding cattle in the temperate highland areas, breeders have scope for the importation of  both Bos Taurus and Bos Indicus breeds as well as dairy cattle.

The Vietnamese government is also promoting improved production through encouraging local farmers to use artificial insemination to lift the genetic quality of the domestic herd.

Importers are concentrating the majority of their technical support efforts in the north where the market is much newer and the importers less experienced in the management of Australian cattle and ESCAS.

Thailand  :  Slaughter Steers AUD $3.68 / kg

No change in live cattle prices with fat steers for local consumption and northern exports selling for the same prices, in local currency, as last month.

Negotiations for the feeder health protocol are continuing. With the two governments apparently in no rush to get the remaining issues resolved, it appears that the first imports might not occur until well into 2015.

Malaysia  :  Slaughter Steers AUD $3.24 / kg

Now that Korban is over and everyone has splashed out, the post festival demand is weak with prices remaining stable and volumes low.

Philippines  :  Slaughter Cattle AUD $1.98 / kg (mainly cull cows & bulls)

The big news in the Philippines this month has been the closure of one of the large western abattoirs near Angeles City in Luzon. This facility has only recently undergone a major upgrade to allow it to process cheaper cows and bulls from Australia for both domestic and re-export markets. The result is not that surprising given the low domestic beef prices in the Philippines and the increased demand and prices for cull cows primarily driven by Vietnamese importers. If the diversion of these cows had not occurred due to rising Vietnamese, Malaysian and Indonesian demand (all of which can pay higher prices) then the opening of the new AACo abattoir in Darwin would have probably had the same affect.

Scotland  : Slaughter Steers AUD $3.76 / kg liveweight

I just had some old friends from Scotland visit me in Indonesia. They are cattle and sheep farmers in the south-west near the English border.

The prices for cattle (and sheep) in the UK are very high compared to Australia but for them these levels represent only marginal returns as their cost of inputs are very high.

Australia not only has the best cattle and beef in the world, it also has the cheapest. Even after a 30% price rise that should come following the next decent wet season, Australian prices will still be cheap compared to the rest of the world.

 The author, Ross Ainsworth is in Beijing this week.  Reports commence from China next month