January Market Report : S.E. Asia Beef Industry

14^th Edition : January 2015.

Key Points

• Indonesian Government policies continue to send conflicting messages
• Strong competition in Vietnam from Cambodian live imports
• The Aussie $ collapse is a lifesaver
• Chinese prices vary dramatically around the country.

Indonesia  :  Slaughter Steers AUD $3.65 / kg live weight

Live cattle prices are firm on last month and expected to start to move upward any day now.  The AUD/Rupiah cross rates are moving very fast. For this end of January report I have used Rp10,000 = AUD$1 for my calculations but already as of 3^rd February it has dropped to Rp9,700. Prices in Jakarta for slaughter steers are about Rp36,000 while in Medan they are closer to Rp37,500. I have averaged this out to give a weighted figure for this report of $3.65.

The main drivers for today’s market are the reduced live import permits for Q1 (100,000 head) and the restrictions on imported box beef to Primary cuts only (hind quarter loin cuts for hotels & restaurants), manufacturing beef (for bakso meat balls), NIL Secondary cuts (knuckle, topside, chuck, etc), NIL offal (lung, liver, kidney etc) but permits for limited fancy meats (tongue and tail only).

All of these changes are highly significant but will not exert their influence on the market until existing supplies for both live cattle and frozen product begin to run out. Live cattle will take a while as there are quite a few left in the feedlots from Q4 imports but imported secondary cuts and offals are expected to be all gone from cold stores across Indonesia by the end of February. For example, the large supermarket chain where we obtain the Jakarta price for knuckle has been out of imported knuckle for the last week and unlikely to get any more supplies unless they source some locally produced secondary cuts from the 4 or 5 western style abattoirs located around Jakarta. These facilities have been doing it tough for years as cheap imports crushed their margins. Their day is about to come, as they will have the only supplies of secondary cuts and offal suitable for the entire supermarket network in Indonesia! i.e. their maximum production will be nowhere near enough.

Local cattle prices continue to climb with scarce numbers attracting Rp45,000 and more per kg live weight (equivalent to AUD$4.50 last week).

So imagine the reaction from the market when the Ministry of Trade issued written instructions (16^th January 2015) to the industry associations – from importers to retailers – to collectively reduce their prices on beef and many other key food items. See the table below which shows the government’s “average” price on the 20^th January and their “ideal” price, which the market is expected to comply with. Just exactly how the bureaucrats in the Ministry of Trade expect the market to reduce prices immediately after they dramatically restricted supply (of live cattle and box beef) is a mystery. One ace that the Ministry does have up its sleeve is that some of the local feedlots are operated by State Owned Enterprises, which will be able to sell their production at a loss if necessary to meet the government’s expectations. The outcomes of the power plays and market forces exerted on the Indonesian beef industry over the next 6 months leading up to Lebaran will be fascinating to watch.

Vietnam  :  Slaughter Steers AUD $4.42 / kg

The live price in Vietnam is VND72,000 in the Ho Chi Minh area and 75,000 in the Hanoi area. Using an exchange rate of VND16,500 to AUD$1 and an average of VND73,000 for the whole of Vietnam this translates to a live price of AUD$4.42. Advice from my sources in Vietnam indicate that there appears to be a surge of live cattle and buffalo imports from Cambodia (ex Myanmar, Thailand and Cambodia) which are providing competition for Australian imports with the result that prices of Aussie cattle are static in terms of AUD$.

See the photo below that I took last week of a slaughter bull ex Myanmar in an abattoir holding pen in Ho Chi Minh City. They are not all this good but many are and the numbers seem significant enough to keep a lid on the prices.

The Vietnamese feedlot industry has recently made its debut with several of the larger importers developing large feedlot capacities. My limited advice is that the capacity in the south is at least 20,000 head with an even larger number in central Vietnam. I am yet to discover the scope of any feedlots in the north. Assuming that  the capacity of the known constructions is about 50,000 head then this means that the Vietnamese industry could import up to 150,000 feeders during 2015. From virtually zero in 2014.

The main Vietnamese annual holiday is Tet, which has the same timing as the Chinese New Year – 19^th February so prices are likely to climb during this coming month in line with peak annual demand.

Thailand  :  Slaughter Steers AUD $4.60 / kg

Prices are firming around Thailand with the different market segments providing different rates. Young cattle ready for the feedlot are selling for about Baht 100 while fat cattle selling out of the feedlot are around Baht115. Today I am using 25Baht to AUD$1 so this translates to a local feeder price of $4 per kg and a slaughter cattle price of $4.60. My sources advise that the flow of cattle from Myanmar are now in the order of 30,000 per month with the same number exported to China (after fattening in Thai feedlots). The price for top quality slaughter cattle (500-600kg) delivered to the Chinese buyers on the northern Mekong border is Baht 140 which today translates to AUD$5.60!

Despite these apparently attractive numbers, the first shipment of feeder cattle is yet to be delivered from Australia to Thailand.

There have been some recent meetings with Industry and Government participants trying to analyse the trends for the Thai national beef herd. The third hand information coming from this source is that the “accepted” government figure for the Thai beef herd in recent years has been reported as in the 5-6 million range.  The recent meetings came to the conclusion that the current figure could be as low as 1 million.

If these numbers are anywhere near correct there must be some major movements in this markets in the very near future.

Malaysia  :  Slaughter Steers AUD $3.52/ kg

Once again, little change in the Malaysian market with the slight price increase resulting from currency fluctuations only. Exchange rate used RM 2.77 = AUD$1

Philippines  :  Slaughter Cattle AUD $2.43 / kg (mainly cull cows & bulls)

Local cattle prices in Philippine Peso’s have firmed about 7% this month and this is then combined with an additional “price increase” due to the Aussie dollar continuing to weaken. The Filipinos are looking forward to a great 2015 with the following list of reasons :-

• No elections – elections are always a time of insecurity
• The present political administration is generally doing a good job
• Fuel prices continue to fall, providing cheaper transport and electricity prices. In a country with so many islands, lower fuel costs have a much bigger impact than elsewhere.
• Farmers continue to enjoy a string of good seasons with good prices for rice and corn
• General construction is booming

Despite this list of positives, the beef price remains the lowest in the region so Australian exports to this market will continue to shrink.

China  :  Slaughter Cattle AUD $4.97 / kg  (RMB 4.82 = AUD$1)

This month the prices reported by my agents for slaughter cattle in Beijing have remained the same at RMB24 per kg while the price in Shanghai has dipped to RMB17. This reduction in Shanghai is a result of a flood of cull dairy cows coming onto the market so I have chosen to use the Beijing price for this month’s beef indicator rate. The dairy industry is undergoing a major correction at the moment with increasing pressure on inefficient producers to get better or get out.

China is such a massive market place with so many factors influencing every parameter it is extremely difficult (and potentially misleading) to use a single figure to indicate local prices. However, I don’t have any better options for now so I will continue to report with a single figure but, where possible, provide some commentary on the broader market.

I am very fortunate this month to have a range of prices supplied by Angus Adnam, a long time livestock exporter (www.aaalivestock.com.au) and frequent visitor to China. Angus spent almost two weeks travelling far and wide around China last month and reported the following prices which provide a much better feel for the huge range of market forces operating across China’s beef industry. Same exchange rate of RMB4.82.

• Live slaughter cattle in the southern Chinese province adjoining the Vietnamese border – RMB30 (AUD$6.22)
• Heavy slaughter beef cattle in Shanghai – RMB 30.5 (AUD $6.32)
• Feeder cattle in central China – ex Inner Mongolia – RMB34 (AUD$7.05)
• Slaughter cattle Wuhan, inland from Shanghai – RMB 26 (AUD$5.39)
• Slaughter cattle Beijing – RMB 27 (AUD$5.60)
• Young Euro Feeder bulls in central China (below) – RMB 40 (AUD$8.29)

Given the massive size of China, the large number of enormous cities, the uneven distribution of wealth and the fact that even their depleted beef cattle herd still probably represents something in the order of 60 – 70 million head, it is not surprising that specific areas within China can have their own market forces which operate, at least to some extent, independently to the rest of the country.

These figures are converted to AUD$ from their respective currencies which are changing every day so the actual prices here are corrupted slightly by constant foreign exchange fluctuations. The AUD$ figures presented below should be regarded as reliable trends rather than exact individual prices. Where possible the meat cut used for pricing in the wet and supermarket is Knuckle / Round.