66th Edition : May 2019.
- Indonesian fat cattle prices finally turn upwards.
- Indonesian lotfeeders receive a long list of bad news.
- Vietnam import demand strong with domestic prices holding firm.
Indonesia : Slaughter Steers AUD $3.91/kg live weight (Rp9,970 = $1AUD)
At long last slaughter steer prices have stopped falling and shown a small increase during the month of Ramadan. This month has seen the rate rise to average Rp39,000 up from Rp38,000 in April. The Ramadan increase in demand is always enough to clear out any backlog of stock while providing a welcome boost to cash flow. Despite the improved trading conditions during Ramadan, importers reported that demand was less than expected with the end result being a little on the disappointing side. Nobody seems to know why this was the case, even those selling Indian beef have reported similar disappointing levels of festival demand. Importers were obviously still taking advantage of this cashflow when they imported close to 59,000 feeder cattle during May. This sharp increase above average monthly levels is also likely to reflect the expectations that feeders will soon be extremely difficult to source from northern Australia while May feeder prices remained subdued at around USD$2.65 CIF. With feeder steers landed Darwin firming to around AUD$3 per kg live weight at the end of May this CIF rate is likely to commence a steady climb throughout the rest of the year. Predictions for feeder prices after July suggest that they may rise as high as $3.50 or more which will translate to a CIF Jakarta price of between USD$3.15 and $3.50.
The long-running cartel, price fixing appeals process has finally ended with all importers now confirmed to be guilty of the original charges and required to pay the imposed fines without further delay. While I have not seen the actual documentation, earlier estimates were that the total fines added up to around USD$10 million for all importers. Considering the poor commercial environment that the industry has been experiencing, this will be an extremely serious financial strain on all parties. It will not be surprising if some more importers also decide to leave the industry permanently.
If that was not bad enough news for lot feeders, the 1 breeder for 5 feeder requirement is finally culminating in penalties being issued to those importers who have failed to comply (i.e. everyone) in the form of a denial of future import permits for a period of 12 months. Each importer has a different date for the annual renewal of their import permit allocations. My advice is that 2 importers have already reached this date during April and May. The bulk of the industry have their anniversaries arriving from August to October. All is not lost however as it would appear that while all of the existing importing companies will receive the penalty of no new import permits for 12 months, there is no restriction for new companies to apply for import permits hence it seems that there will not be any interruption in the flow of permits issued as everyone will simply create new entities, obtain the necessary permits and keep the supply chains flowing.
The 1st of June was the planned date to usher in yet another hit for the trade in the form of the new Australian Standards for the Export of Livestock (ASEL) regulations which require a reduced stocking density for cattle transported by sea. This will result in less cattle being carried on the same ships and therefore a higher freight cost per head. A 300kg feeder steer will have its space allocation increased by about 5% which might add about $20 per head to the delivered cost. It appears the implementation date has been delayed for a short period to allow for administrative matters to be put in place. When all the above factors are combined, the outlook for the Indonesian feedlot sector could only be described as diabolical. While recent statistics have shown an upwards trend in live cattle exports to Indonesia this will be short lived as a combination of the factors outlined above all collide and push our best market to its lowest point in decades.
Vietnam : Slaughter Steers AUD $4.48 / kg (VND16,300 to $1AUD)
The Vietnamese market is the stand out performer at the moment with consistently high domestic slaughter cattle prices combined with growing numbers of imports of feeders as well as slaughter cattle. This market is growing and maturing just at the right time to offset some of the effects of the downturn in Indonesia market conditions. 22,000 head were imported in April consisting of 11k feeders and 11k slaughter cattle. A similarly large number were imported in May but I don’t have the actual figures for this month yet. The strong domestic economy, a totally inadequate domestic cattle herd and declining live cattle imports from its traditional SE Asian neighbours means that the gap between short supply and increasing demand continues to grow. March to the end of June is the traditional time for a seasonal surge of live imports of slaughter cattle from Laos and Cambodia but this is significantly reduced as their herd numbers have also declined. The government has initiated many projects designed to assist local farmers to breed more and more beef cattle but just like the rest of Asia, the land is too valuable to breed cattle as almost any other enterprise will generate a far better return. Breeding cattle only makes sense on poor quality land that is no good for anything else and Vietnam has very little of that.
Slaughter cattle prices are the same as last month with steers selling for about VND70,000 in the south and VND74,000 in the north. Feedlot capacity remains at around 100,000 head (after the departure of the 2 big players) which is at about 60% utilisation at the end of May. The Vietnamese press continues to publish numerous articles on the fallout of the financial collapse of the two giant feedlot projects which resulted in losses of many millions of USD$.
Prices of beef in the wet and supermarkets remains steady at the usual high rates.
The Vietnamese seem to have a high level of scammers with lots of examples of counterfeit items like buffalo meat and pork being dyed and modified with chemicals and bovine blood to look like beef. The shocker that was reported to me this month is a completely fake African Swine Fever vaccine which is being marketed as a genuine product for the protection of pigs. With ASF recently identified in Vietnam, it is hard to imagine anyone being ruthless enough to sell a desperate farmer such a vile product which can only result in further financial loss for the despairing pig producer.
China : Slaughter Cattle AUD $5.42 / kg (RMB 4.80 = AUD$)
Very little to report from the China market this month with slaughter cattle and beef prices relatively steady. The government is suggesting that the spread of ASF is now largely under control but it is the destock, clean-up and restock processes that will require a huge amount of resources and a period of several years until the pig population can recover to anything like its previous position. My Shanghai agent has reported that retail pork prices have risen by 12% during the month but this may well be just a one off movement.
Philippines : Slaughter Cattle AUD $4.74 / kg (Peso 36.3 to AUD$1)
The Filipino economy keeps on performing beautifully with the currency strengthening again this month which has caused the AUD cattle price above to increase once again even though my local price indicator remains the same at Peso172 per kg live weight. My advice is that there is a resurgence of shipments of feeder cattle being sent from Mindanao to Manila where they are fattened in feedlots and subsequently slaughtered. What is not so clear is why the importation of Australian feeders has not recommenced. If anyone can help me to understand this situation I would be happy to hear their views.
The current concern around ASF has resulted in the government banning pork imports from China and Europe for the time being and having a major crackdown on live pig and pork smuggling which is a fairly popular local pastime whenever there is a decent differential in the prices on either side of the water. My money would be on the smugglers.
Thailand : Slaughter Steers AUD $4.09 / kg (Baht 22.0 to $1AUD)
No change from last month with restrictions on the live trade into China continuing to keep a lid on demand. The increase in the AUD rate above is purely due to the strengthening of the Baht.
The Thai government has initiated a major program designed to prevent the introduction of ASF but considering their traditional live animal trading links with China and the massive numbers of Chinese tourists that come to Thailand every single day, the chances of introduction of the disease must be very high.
The Ministry of Agriculture and Cooperatives (MOAC) recently published research showing the economic damage that would accrue if an ASF outbreak occurs in Thailand. MOAC estimates that if the disease infects 30 percent of swine population, economic damage will total 21.17 billion baht (U.S. $672 million). In the scenario of a 50 percent swine infection rate, the economic damage climbs to 35.28 billion baht (U.S. $1.1 billion) while in the 80 percent infection rate scenario the economic damage reaches 56.45 billion baht (U.S. $1.8 billion).
My sister Lynn visited Florence, Italy during May and sent me these photos focusing on Bistecca alla Firoentina, a famous Tuscan cut of bone-in beef which must include part of the porterhouse. If you order this delicacy you need to understand which part you are getting and it is massive so you also need to organise some mates to share the meal. Originally this beef only came from the local Chianina breed but is now also sourced from a range of other large European cattle breeds.
These figures are converted to AUD$ 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.