Live Export

Livex cattle prices to suffer under partial re-opening

Jon Condon, 29/06/2011


Don HeatleyNorthern live export cattle prices could slump in the event of any partial re-opening of trade with Indonesia where only a handful of exporters are engaged, industry stakeholders and analysts suggest.

Any re-activation of the trade involving only a few exporters with access to a narrow band of approved processing facilities in Indonesia would inevitably put significant downwards pressure on livestock purchase price, producers were warned yesterday.

Meat & Livestock Australia chairman Don Heatley, attending a Meat Profit Day at Eidsvold in Central Queensland, conceded that simple supply and demand principles would apply if a partial re-opening occurred.

Early signs of a downward pattern in price came last week, when a live export consignment loaded in Darwin for Egypt apparently paid around 150c/kg liveweight for heavier boat cattle, down about 40c-50c/kg on rates seen prior to the Indonesian market closure on June 7.

Mr Heatley said it was obvious that ‘all the potential was there’ for serious market distortions to occur under any scenario where only a limited number of exporters and Indonesian processors could operate.

“However the great unknown at the moment is how many processing plants will be active in the first stage. We know there are five with OIE standards, and another five that are close. That means there is the potential for ten plants, and we think we can add more reasonably quickly,” he said.

More Indonesian abattoirs in operation would mean more exporters likely to be able to compete for cattle out of Australia, and less distortive effect on the northern Australian cattle market.

Mr Heatley said having the whole Indonesian live trade channelled through a very small number of processing plants would put significant pressure on cattle prices, due to the large backlog of available stock and a relatively small ‘funnel.’

At the same time, the plant approval process had to be done with full integrity. The industry could not afford to compromise, simply because the boat cattle market was coming under stress.

“We don’t have a choice. It would be catastrophic if things went wrong at the Indonesian end, and we would be right back where we started, or worse,” he said.

As a result, any market re-opening needed to include as many plants as possible, while ensuring that there was no compromise in activity within those sites.

Given that historically, about 10,000 cattle per week entered the Indonesian supply chain, there was already a backlog of about 40,000 northern Australian cattle that had not been shipped since the suspension, Mr Heatley said.

“That then, leads to the question of how Australia manages the distribution of livestock sales across the northern industry – in essence, a fair and equitable chance to sell cattle for the remainder of this year,” he said.

“But there is no obvious answer. It’s likely to be dictated by price. Unfortunately, all the opportunity is there to drive price down, given the large available supply, and narrow buyer base,” Mr Heatley said.

Upwards pressure on Indon meat prices

Equally at the Indonesian end, any limited number of abattoir facilities with access to killable Australian cattle could have a price bonanza in the beef-starved Indonesian marketplace.

Northern Territory Cattlemens Association president Rohan Sullivan touched on the potential for market distortion in Indonesian meat trade on Friday.

He said Indonesia wanted to ensure that a ‘large number’ of abattoirs were upgraded to prevent a monopoly situation arising in the meat market, and higher prices. However feedback indicated that the Indonesian Government was in no hurry to sign-up to Australia’s Exporter Controlled Supply Chain Traceability and Assurance System proposal.

Asked what now happens with livestock import permits for the balance of 2011, Don Heatley said the issue sat squarely under the control of Ag minister Suswono.

“Australia now has the basic groundwork done to have the trade re-opened, and we can have export permits issued, but cattle will go nowhere until Indonesia decides to issue import permits,” he said.

Eidsvold Meat Profit Day speaker, Peter Weeks, a former chief analyst for MLA now operating his own consultancy, agreed with Mr Heatley’s assessment on potential for boat cattle price decline.

“In the event of partial re-opening, there is going to be a lot of cattle trying to push through a very narrow buyer bottleneck. If that happens, the price is likely to be little more than the alternative: sending those cattle to slaughter or store markets in southern Australia, which incurs a huge freight bill,” Mr Weeks said.

Historical precedent

Mr Weeks pointed to the last ‘really big’ disruption to the live export trade, the Asian currency crisis of 1997, as an example of similar circumstances. Australia had a very large live trade with Indonesia at the time, supplemented with a few smaller markets.

“Trade with Indonesia collapsed overnight,” Mr Weeks said. “Australia found markets for some of those cattle into alternate markets like Libya and Egypt, but it still took a big hit on price.”

The total decline in value at the time was about 40 percent, and the decline in numbers about 30pc. Extra transport cost to more distant destinations was one factor, but more important was the greater price sensitivity in markets other than Indonesia. That meant buyers simply had to pay ‘a little more than the Australian store market’ option in a supply surplus situation to secure live export stock.

Mr Weeks said some northern producers exposed to Indonesian live export could ultimately change their production systems based on the absence of trade and current uncertainty surrounding Indonesia. Under Indonesia’s 350kg weight limit protocol, many producers modified their production systems to better cope with the trade’s requirements.

“Some of those producers may now simply ignore Indonesia and grow cattle out to heavier weights, targeting Malaysia, the Philippines and the Middle East where heavier live export cattle are acceptable,” he said.

The season could also stimulate that thinking, and heavier cattle were also more attractive to consign south and east for processing, if required.

One thing appears certain under any partial Indonesian re-opening: exporters that can access to trade through their relationships with approved plants in Indonesia stand to make a lot of money through one of the most basic of marketing fundamentals: buy low, and sell high. It could partly explain some of the furious lobbying in Canberra that occurred in recent weeks among stakeholders who claim to have secure supply chains in Indonesia that stand up to international scrutiny.

  • Keep and eye on Beef Central for more uploads on outcomes from the Eidsvold Meat Profit Day


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