200,000 Indo permits will test northern supply

James Nason, 09/10/2015

Exporters have wasted little time assembling and shipping cattle to Indonesia under the recently released fourth quarter permits, with five livestock vessels departing the Port of Darwin since the quarter began just over one week ago.

Indonesia has issued permits for 200,000 feeder cattle for the final three months of the year, and the question now is whether exporters can find the cattle needed to fill the order.

Northern Territory Livestock Exporters Association chief executive officer Stuart Kemp said the general feeling is that sourcing that volume could prove difficult.

“The first 150,000 shouldn’t be too bad, but the last 50,000 might be more difficult to locate and flush out, particularly as we get into December and it starts to rain and access becomes an issue,” he told Beef Central this week.

It is understood that the bulk of cattle in the early shipments were purchased by exporters before the new permits were issued, so it is still not yet clear what effect the additional demand created by the new permits will have on prices for northern export cattle.

A call around exporters on Thursday afternoon suggested prices are still in the 290-305c/kg price range, with the bigger money available for larger lines of good quality, ready-to-go cattle on the flood plain close too Darwin, and the lower range for feeder cattle showing the effects of the back end of the dry season and feed burn off.

Northern Territory cattle industry leaders have often stated in recent years that producers need prices of 300c/kg to make a profit and to make necessary reinvestments in their enterprises.

Mr Kemp said it was important for producers to be able to take the opportunity of high farm gate returns now to invest in water infrastructure and herd improvement to ensure the industry can keep pace with increased demand going forward.

But he also cautioned against expectations that the market could digest further price rises, suggesting the industry is now close to a critical price point where markets may soon start to look for alternatives to Australian beef.

Some Indonesian importers are reporting subdued market conditions, with one making the comment this week that the market has hit a low point not seen since 1998, when mass riots which led to the fall of President Suharto caused an economic downturn. The importer, who declined to be named, said cattle are currently exiting feedlots at lower than break even point, while beef is not moving in modern retail markets either. (See more on current Indonesian market conditions in Dr Ross Ainsworth’s latest South East Asia market report on Beef Central today).

“We’re very close to, if we’re not there now, a critical price point where the product landed at the meatworks in Indonesia is too expensive for the consumer to be able to buy that product,” Mr Kemp said.

“We don’t want to get to the critical price point, and we don’t want to lose that market, especially at a time where Thailand and Vietnam are negotiating prices and deals to bring cattle in from South America.”

The challenge now facing exporters to find 200,000 cattle in a tight supply environment underscored the need for longer lead times in permit allocations from Indonesia, Mr Kemp said.

He said northern industry representatives have had constructive correspondence with Indonesian departmental staff about the benefits of announcing annual permit expectations before each year begins.

“Then you get greater negotiating power, you can lock in cattle, you can have a more of a say in price,” Mr Kemp said.

“At the moment exporters are reluctant to buy too many cattle in advance, because there is no consistency from quarter to quarter.

“We got caught out in July, exporters had boats tied up waiting for permits to come through for 10 or 14 days into the quarter (before permits for only 50,000 head were finally announced, well below the 200,000+ widely anticipated)

“So these things mean that shipping schedules, are locked in for Vietnam and other markets.

“Announcing well in advance what your requirements will be will give you negotiating power on price, will return you to the priority customer and will mean that shipping schedules will be locked in around Indonesia, rather than other markets.”



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