Prices for export feeder steers in Northern Australia have retreated by 20-25c per kilogram in recent weeks as the Indonesian market comes under pressure from increasing supplies of imported beef and cross-rate challenges.
The price of beef in Indonesian wet markets has eased by around 10 percent or more since early April, largely in response to the large supplies of beef now available in the market, both from imported cattle and boxed beef.
After sitting at $2.30/kg from late January to early April, the price of feeder steers ex-Darwin has come back to around $2.05 to $2.10/kg in recent weeks, with some buyers quoting prices down to $2kg, according to several export and import industry sources contacted by Beef Central in recent days.
Exporters shipped more than 300,000 Australian cattle to Indonesia between November and March, and are currently filling import permits to supply another 273,000 cattle to the market between April and June.
Most of the cattle shipped in November and December have now moved out of feedlots and have been processed, adding to an influx of beef in a market that is also receiving large volumes of lower-priced imported boxed beef.
After averaging 2000t per month for most of 2013, Australian exports of boxed beef to Indonesia rose to 6000t in November 2013, followed by 4700t in December, 4003t in January, 6071t in February, 3047t in March, 4529t in April.
In terms of fiscal year to date, boxed beef imports from July 2013 to April 2014 totaled 41,671t, almost double the 22,204 imported during the corresponding period of the previous year.
Indonesia also receives smaller volumes of imported boxed beef from the US, Canada and New Zealand, and in recent years there have been anecdotal reports of cheap, illegally-imported Indian buffalo meat also selling in the market.
At the start of 2014, with wet market prices averaging over 100,000 Indonesian Rupiah per kilogram, the Indonesian Government announced its plans to import more than 700,000 cattle for the year, in a bid to bring wet market prices down to an average of 76,000 IDR/kg.
The massive increase in projected import volumes saw some exporters sign forward contracts to secure steers at prices of $2.30/kg ex Darwin out to June, and in some cases as far out as August.
However, with Indonesian wet market prices now easing in response to the improving supplies (which has happened faster than many expected), and importer margins said to be pushing into negative territory, prices being paid by exporters for non-contracted cattle have eased to the low $2.00/kg range. The outlook for likely import volumes in the second half of 2014 is no longer looking as bullish as it was just a month ago.
Importers claim they cannot extract a profit between the price they have to pay to secure imported cattle and the price they are paid for their finished cattle from wet market butchers at the other end, which they say is being pulled down by the increased availability of cheaper imported boxed beef in wet markets.
Technically imported boxed beef is not supposed to sell in Indonesian wet markets, under regulations which are designed to protect markets for locally produced beef, which includes locally value-added beef from imported, Australian bred cattle that were fed in local feedlots. Imported boxed beef is intended to supply the higher-end food service trade.
However, demand for beef in Indonesia in recent months has been so great, and the desire by the Indonesian Government to reduce prices in wet markets so strong, that increasing volumes of imported frozen beef have been selling in wet markets with few impediments.
Customers buying in wet markets typically look for beef that is hot and twitching and fresh from slaughter, and are less accepting of the previously frozen imported beef that drips water as it thaws, however, the imported boxed beef is still much cheaper than the locally-fed product.
One cattle importer indicated to Beef Central that he needed to sell his cattle to wet market butchers at price of 90,000 IR/kg to maintain profitability, while imported boxed beef was selling at 60,000 IR/kg. As a result wet market butchers were tending to sell a mixture of both which was bringing the price of beef in wet markets down.
At the same time, the Aus-IDR and US-IDR cross rates are also adding to pressure on importer profitability.
While the Australian dollar has remained relatively strong against the US$, the IDR has steadily weakened against the greenback. 10 years ago, it took 4500 IDR to buy one US$, today, it takes 10,800 IDR.
Consequently, the influence of exchange rate movements alone means it is now costs Indonesian importers more than double in IDR what it cost them 10 years ago to land a $600 Australian steer in their feedlots.
The implication is that cattle importers, struggling to turn a profit under current market dynamics, may apply for less permits in the second half of 2014 than they had initially planned.
At the same time the arrival of the first official day of the dry season on May 1 has heralded the start of the Northern Territory mustering and marketing season.
Exporters by now will have largely emptied the available numbers of cattle that were available in dry north western Queensland over summer and their attentions will now turn to emptying out the NT and Kimberley.
Over 650,000 head of export cattle are expected to come out of the NT this dry season, destined for both feeder and slaughter cattle markets primarily in South East Asia.