Indonesian live exports looking positive

Indonesian live exports looking positive


Markets
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The Indonesian government's 5:1 feeder/breeder requirement appears to be managed in a logical manner.

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We have started the year with some encouraging news in the live export space.

There had been a degree of uncertainty around how the Indonesian government would manage the 5:1 feeder/breeder requirement imposed in late 2017 – due for audit at the end of 2018.

But following news at the start of this year, it appears it will be managed in a logical manner.

In press reports from January 8, the Indonesian government stated that only 8 to 10 per cent of lotfeeders had followed the regulations and imported one breeder animal for every five feeder cattle.

Encouragingly, the same reports indicated the government had not thought of imposing sanctions for feeders who do not comply.

Instead the government will discuss possible revisions to the regulation with the Indonesian Beef Cattle Farmers Association.

The requirement to import breeding cattle was difficult for the importers – usually lotfeeders – to manage. Breeding cattle take up valuable space in feedlots, reducing income and challenging profitability.

The uncertainty around the audit was evident in the market late last year. After larger numbers of cattle were shipped in July and August, a second peak occurred in October. 

This lift in imports late last year created two “lumps" of cattle on to the market, which will be too early for the peak demand period.

Ramadan and Lebran are early this year, falling in May and early June. This is one of the peak demand periods for beef in Indonesia.

However cattle that were imported in October and November and are normally on feed for 120 days will be ready in February and March, a relatively low period for demand.

This may cause Indonesian cattle prices to fall over the coming months and challenge profit margins for lotfeeders.

The other challenge that may arise is occupying space in feedlots. The ability to take on more cattle between now and February in preparation for the peak demand in May will be limited.

So the demand and supply becomes a little out of whack, meaning we could see some uncertainty in prices and demand over the coming six months.

In another report from early January, the Indonesian Ministry of Agriculture announced targets for live cattle and bovine imports.

Given the government’s expected local production of 430,000 tonnes, Indonesian officials estimate the need to import up to 288,000t of bovine product in 2019.

The government has outlined this may include 600,000 head of feeder cattle (equivalent to about 120,000t), 88,000t of frozen beef and 80,000tof carabeef from India.

These are positive numbers for Australia.

It lines up with the proposed numbers in the Indonesia FTA’s (not yet in force) initial quota of 575,000 head.

Furthermore, in the past three years Australia’s live export feeder cattle numbers have been between 490,000 and 590,000 head, with boxed beef exports to Indonesia averaging 56,000 tonnes.

So it provides some room to grow – something that might be needed given the dry conditions across areas of the Northern Territory and Queensland.    

  • Angus Gidley-Baird is a Rabobank senior analyst.
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