As originally published on Beef Central
43rd Edition : June 2017.
Key Points
- Indonesian Ramadan passes with flat live cattle prices
- Consumer resistance forces some Vietnamese abattoirs to close
- Shanghai prices rising despite the ongoing northern drought
Indonesia : Slaughter Steers AUD $3.95 / kg live weight (Rp 10,125 = $1AUD)
The political system in Indonesia can regard itself as extremely successful in its quest to hold live cattle prices down for the Ramadan and Lebaran festival period. For the first time in the 17 year history of fattening Australian cattle in Indonesia, prices of live slaughter cattle remained constant during this short period of highest annual demand. This impressive achievement was made possible by a two-pronged approach combining strong competition from low cost Indian buffalo beef with threats of serious sanctions to importers if slaughter cattle prices were found to be rising backed up by frequent price monitoring visits to feedlots and abattoirs by the local police force. Prices remained consistent at about Rp40,000 per kg live weight for the full month. The only good news for lot feeders was that they were able to sell higher numbers during the festival and effectively clear out their backlog of fat and expensive cattle making way for new stock coming through the supply chain. As a further bonus, these new cattle were purchased at significantly lower incoming prices than those very expensive animals dispatched during Ramadan.
Unfortunately for Indonesian consumers, retail prices did show a small spike with knuckle in our local wet market rising from the usual Rp130,000 to Rp140,000 while supermarket knuckle briefly rose from the usual Rp150,000 mark to closer to Rp200,000. There were a small number of Rp150,000 prices reported in north and east Jakarta wet markets but these were very much in the minority. The simple fact is that fixing slaughter cattle prices ignores the fact that the retail price is set several steps down the supply chain from the abattoir where thousands of small traders in wet markets spread across a vast area are beyond the control of the police or any other form of effective regulatory process. It is much more difficult to get reliable information on Indian beef prices but the information I was able to obtain suggested that its rates rose from the usual Rp80,000 range to around Rp100,000 per kg so the spike was not too great and still provided prices well below those of fresh product.
What is not clearly understood in this situation is that the real loser in this process is the small farmer and therefore in the longer term the national cattle herd. When small farmers review their businesses and the place of their breeding cows in that business, I suspect that many of them will come to the conclusion that the returns from keeping the two cattle in their back yard no longer justify the hard work involved in cutting grass for them every day of the year as well as the risk that they might die or fail to produce a calf. Falling demand for live slaughter cattle, to the tune of 50%, with little chance of a significant recovery will surely lead a proportion of farmers to sell at least some of their cows and therefore contribute to a shrinking national herd. This reduction in supply from domestic breeding will be offset to some degree by the reduction in imports from Australia as lot feeders cut back on their incoming shipments. In due course, all these competing forces will combine and deliver price signals to help farmers to decide if they should keep or sell their cows and how much importers need to reduce their import permit applications. In my experience the raw power of simple supply and demand cannot be ignored so numbers of breeders and feeders must decline. The only thing that is not predictable is the magnitude of this shift. Offers of free semen from the government are unlikely to have any significant impact on this decision making process.
A number of exporters have advised that they have no orders for any feeder cattle for Indonesia during July, definitely another first as July traditionally provides the lowest feeder prices from northern Australia, except for this year where they remain stubbornly high. The cause is reduced stock availability as northern Australian producers rebuild their herds following the long period of drought combined with strong international beef prices allowing the southern feedlot and processing sector to continue to compete strongly for northern cattle. Beef Central reported on the 7th July that the Australian Bureau of Statistics has just stated that in their opinion the national beef herd actually declined to a much lower level than previously predicted by other sources at 22.3 million in mid 2016. This very low number would help to explain why prices are defying normal seasonal trends in Australia despite much weaker demand for live exports from S. E. Asia.
The rumours about a forthcoming shipment of live feeder cattle from Mexico are, I expect, just that, rumours. The chances of a real shipment are getting less by the day. The Mexican Peso has strengthened against the USD from 21 to 18 over the last 6 months while the prices of Mexican feeders has risen on the back of stronger demand for live exports into the USA feeder market. In the last week of June, the price of 330 kg Mexican feeders was about USD$2.30+ or AUD $3.06+ per kg. In round numbers it costs about another $1 AUD to deliver feeders from the farm in Australia to S. E. Asia, a sea journey averaging about 5 days. So what would it cost to deliver these animals all the way across the Pacific Ocean – about 20+ days depending on the ship? I don’t have those figures but can say that the probable sums for a Mexican shipment to Indonesia (or Vietnam) simply don’t add up because the additional cost of freight and other related export expenses is just too great to make it work at current prices.
The ban on the slaughter of Indian cattle and buffalo.
This issue continues to boil along with the latest news relating to the southern Indian state of Kerala defiantly confirming that it will continue to sanction the legal slaughter of cattle regardless of the attempted national ban. The fanatical Hindu religious fringe has been heightening tensions by forming lynch mobs who murder anyone they find who they suspect might be involved in the slaughter and consumption of cows or beef.
How this will end up is anyone’s guess but my money is on the continuation of the legitimate slaughter of surplus dairy buffalo and the downstream buffalo beef export industry which generates massive foreign exchange revenues for the Indian economy.
With plenty of Indian buffalo beef in Indonesian cold stores, the impact of cheap frozen product could easily continue until the end of 2017 without the need for further imports.
Vietnam : Slaughter Steers AUD $3.94 / kg (VND17,250 to $1AUD)
It looks like the Vietnamese market has finally hit the wall with large numbers of consumers flatly refusing to pay more for their fresh beef. This collapse in demand has been most marked in the south where a number of larger abattoirs have closed their doors rather than operate at a loss. Importers are desperate to reduce costs but are having little joy as even buying cull cows from Australia is an expensive alternative as a result of the general shortage of slaughter cattle across Australia. The traditional alternative of Thai cattle is also out of the question as their prices are even higher than Aussie imports.
Prices in the north range from a top of Dong 76,000 for lean bulls to D71-73,000 for high yielding steers. Bull prices in the south are from D70 to 71,000 while quality steers will bring 68 to 69,000 Dong per kg live weight. Fat cattle are savagely discounted. The recent slow down in imports from Australia has not been able to force the price any higher with abattoirs simply closing their doors until trading conditions become more favourable. The chances of this happening in the short term look slim with a dramatic weakening in the Aussie dollar or the Thai Baht about the only “easy” solution.
Thailand : Slaughter Steers AUD $3.89 / kg (Baht 25.7 to $1AUD)
Thai prices continue to go nowhere with slightly better rates @ Baht 98 available for a small number of lean bulls suitable for Vietnam but even that trade is declining as the cost of exports is still too high to be attractive to importers. Domestic demand is reasonable but at prices around 92 Baht per kg live weight just not enough to get producers excited about investing in beef production.
The Thai and Australian governments organised a beef cattle expo in Khon Kaen at the end of June with the aim of encouraging local farmers to switch to cattle breeding and help to rebuild the domestic herd. Unless there are some dramatic changes in either supply or demand there appears to be little incentive at the present time for Thai farmers to switch their resources into beef cattle production. Their best market has recently been China so perhaps when the drought breaks in Mongolia the rates for Thai cattle delivered to the northern border for the grey route will be the stimulus that is needed to commence serious herd rebuilding.
Malaysia : Slaughter Steers AUD $3.63 per / kg (RM3.25 to $1 AUD)
All food prices experienced a short spike in Malaysia during the Ramadan and Lebaran festival period but have quickly settled back to normal with the exception of Indian buffalo. Something interesting is happening to Indian buffalo prices but I have no idea what the cause might be. Can anyone shed any light on the reason for the steady rise in prices as shown below?
The general weakness of the Malaysian Ringgit against the Indian Rupee does not account for the 10 month, almost straight-line increase of 23.5% in the prices shown below.
Philippines : Slaughter Cattle AUD $2.92 / kg (Peso 37.7 to AUD$1)
No significant changes in the live cattle rates for the Philippines but plenty to report in a general context. Here are some comments from my agent in the Philippines which I feel are best expressed in his own words:
“It’s been an exciting time this month. MARTIAL LAW. For the second month but guess what, Good Business. Markets FULL OF OFFER. Prices even slightly cheaper. So for the consumer more affordable, all AGAINST ALL ODDS. We have now 1 year the new administration. We could somewhat make a score board. Good business. As per record, the Philippines has an almost 7% growth. That’s only little below what China does. Better then anybody around us. And while poverty remains among the lower class people, the middle class grows FATTER…. when it comes to governing a country, nobody does it like Rodrigo Duterte. Anywhere between 7000 to 9000 people have been killed in “the war on Drugs” and he has a 75% approval rating. In the West, nobody ever gets that for more then a few seconds. And the ratings became even stronger after the implementation of Martial Law. Last Weekend was end of the Ramadan. He allowed an 8 hours “ceasefire” for the Muslims fighting in Marawi to have a prayer. Out came the message that the Muslim Rebels would like to “talk peace” and he told them, there will be peace after I kill you all, and the shooting restarted. When Muslim leaders were asking the spare the Mosques, he told them, if the rebels hide there, we will flatten those Mosques and when peace is restored, we will build new ones. It will create work.”
China : Slaughter Cattle AUD $4.17 / kg (RMB 5.16 = AUD$1)
Prices in Beijing have softened slightly while those in Shanghai continue their strong recovery for the 5th straight month with rates now reported at Y22 for slaughter cattle.
Both my agents in China have confirmed that the drought in the north continues despite some welcome but limited rains in some areas. See below a photo I received last week from Inner Mongolia showing one area experiencing a very welcome recovery.
Laos
The Laotian beef industry is pretty small with much of their beef (and chicken and pork) imported from Thailand. The wet market stall in the photo below is selling Thai beef from CP for Kip 50,000 per kg while local fresh product sells for 70,000 Kip. This converts to about AUD$11 per kg for fresh local beef and AUD$7.87 for frozen Thai beef.
Madagascar : Slaughter cattle AUD 93 cents per kg live weight.
My friend George Black, has recently been visiting southern Madagascar where he took the photos below. Live cattle sell for AUD 93 cents per kg for aged steers while cull breeders bring AUD 76 cents per kg live weight. The meat produced sells in the wet markets for AUD $3.80 per kg.
These figures are converted to AUD$ 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.
