Live Export

Indonesians to start negotiations with Mexican live exporters as Aussie feeder cattle rise to record prices

Dr Ross Ainsworth, January 25, 2021

INDONESIANS are understandably concerned with the sudden rise in live cattle prices especially at this time when their domestic economy is under great pressure from the pandemic.

As of last week, rises in the cost of slaughter cattle has led to the Meat Traders Association refusing to trade cattle and beef for a four-day period.

Consumers are naturally concerned with the resulting scarcity with politicians being asked to do something, but what can they do?

The underlying cause of the rise in the retail prices is the high cost of live cattle imports from Australia.

As the graph below shows the rates for feeder steers from the port of Darwin have risen over 40 percent from a low of AUD$2.80 per kg live weight in April 2020 to $4 per kg in November 2020.

At the same time, the dark blue line below shows Indonesian slaughter cattle prices (at the feedlot gate) have remained relatively constant as importers have absorbed the additional costs at the expense of their own cash flows in the hope that the rise would be short lived.

Graph: South East Asia beef report

Indonesian authorities have advised that they will target imports of 502,000 live cattle and 85,000 tons of beef during 2021 “to help plug the supply gap of meat in the domestic market. In addition Indonesia is also planning to issue import permits for 100,000 tons of Brazilian beef and water buffalo meat from India”.

With Australian live cattle so expensive, importers have searched worldwide for alternatives and found that Mexico is currently a possibility.

Mexico exports over a million head of live cattle into the USA every year so their health status is very high, certainly suitable for imports to Indonesia.

Preliminary quotes obtained by Indonesian importers suggest that by using the largest ship available, 23,000 head of feeder bulls could be delivered from Mexico to Jakarta for a CIF price of USD3.30 per kg.

This also requires multiple shipments to have any meaningful effect.

By comparison, the current CIF rates for delivery of feeder steers from Darwin is around USD$3.80 or close to AUD$5 per kg.

I have contacted an old friend from the live cattle business in Mexico and here is his response:

“Cattle prices in Mexico have been reasonably stable. The Mexican Peso has been strong against the USD at 20 peso = 1.00USD. Today you could buy Indo type young bulls 325kg average for USD$2.10/kg on farm. In the event of a shipment (in my view) these prices will jump to USD 2.35/kg on farm. My current estimates are FOB Mexican Pacific Port USD2.75/kg with CIF Indonesian port USD3.75/kg.”

Perhaps other exporters can provide a better deal. Financing such a large deal with a long lead time will also be a challenge.

In addition to the costs and logistics of the import process there are also large bureaucratic hurdles to jump as I expect that Indonesia will not have an existing live cattle import protocol established with Mexico.

Normally there would be a series of personal visits by a large number of animal health experts from Jakarta to the import destination but that will be not be possible at the moment due to the pandemic. Indonesia does have an embassy in Mexico City so they may well be able to achieve the result quickly with local staff and digital communications.

Indonesian importers know from long experience that the price of cattle in Australia is driven solely by market forces while the Indonesian government has actively held the price of fresh meat down by the threat of sanctions against lot feeders if slaughter cattle prices rise above their declared maximum.

Last year the Indonesian government dropped the 5 percent import tax on live cattle so there is little more that can be done at their end to further cut the cost of imports.

The only entity that has any scope to reduce costs is the Australian government which has recently imposed a number of additional costs onto the export industry with the introduction of ASEL 3.0 and upgraded version of the Australian Standards for the Export of Livestock.

Some of these new costs which have been in place since November 2020 include requirements for additional stockmen, more space for certain classes of stock, extra time in quarantine yards and others.

With Townsville prices for slaughter stock also rising to $4 per kg live for Vietnamese slaughter cattle it would not be surprising if they are not already investigating alternative supplies as well.  As Vietnam is endemic for Foot and Mouth Disease they have many other countries to pick from such as Colombia and Brazil where cattle are much cheaper than in Mexico.

As a famous financial analyst recently said, “the cure for high prices is high prices”, meaning that if the price is so high that the customer is unable to pay then the demand disappears and the price returns to a workable level.

The market will always figure it out, the question we don’t know is how long it will take.

In the meantime the best we can do is communicate with our customers to assure them that we understand their position and that if there is anything practical that we can do to assist then we will do our best to help.

Internet photo of Mexican feeder cattle from Losagronegocos.UY. magazine showing that the types of cattle available are similar to those sourced from Australia.

Photo from the Mexican brahman breeders magazine. Their brahman genetics are mainly imported from the USA resulting in a domestic tropical herd with very similar to the genetics in northern  Australia.

 

 

 

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Comments

  1. Javier Carrera, March 18, 2021

    Using Mexican cattle as an excuse to soften the producers and think about lowering their costs is an old trick, today I was contacted by someone from the Indonesian embassy in Mexico, and indeed, there is NO protocol for the export of live cattle, the Export logistics is oriented to the United States and due to my experience of shipping cattle to Turkey, establishing an export route to a Mexican port in the Pacific makes its export hardly viable, inventories are also low and the Mexican bureaucracies are at the highest level of incompetence.

    • Will it possible Indonesia import cattle then from mexico ?

      Since 2014-2015 Indonesian authority approved some exporters from mexico to export cattle but jot single one has arrive yet.

  2. Val+Dyer, January 26, 2021

    Swings and roundabouts in the demand/supply situation. What will be will be.

  3. Nagadev Challa, January 26, 2021

    Interesting website

  4. Max Leggett, January 26, 2021

    Cattle number are low in Australia , due to the drought,prices are being push by farmers trying to rebuild herds.

  5. Matthew Della Gola, January 25, 2021

    I agree with the comments regarding “the market will find a way”. Take drought and floods out of the equation there has been a multitude of political descisions made in australia and also in Indonesia that has pushed the market to find different options to survive and keep trading. You cant have it both ways and or your way. There needs to be balance. Again “the market will always find a way”

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