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Indonesia Corn / Wheat Annual Report 2004
USDA, April 9, 2004
Wheat imports are forecast to grow only marginally, reaching 4.2 million tons in 2004/05. High international prices and freight rates are expected to cause millers to gradually raise flour prices, inhibiting demand growth. In addition, increased competition among the 4 mills, combined with flour imports, will continue to squeeze margins, forcing importers to look for lowest cost supplies. As a result, mills are limiting purchases of premium-valued higher protein hard wheat, which is negatively impacting U.S. trade. Furthermore, plentiful supplies from Australia, combined with a huge freight advantage, will ensure that Australian wheat will gain market share and continue to dominate the import market. Due to relatively high U.S. prices and unprecedented freight rate costs, U.S. market share will suffer through the rest of 2004 and into the 2004/05 marketing year.

Due to expectations for sluggish consumption growth, wheat imports are forecast to grow only marginally to 4.2 million tons in 2004/05. While one mill continues to dominate with about 80 percent market share, competition among Indonesia’s 4 mills is expected to continue to remain fierce. This will require the mills to continue to shrink margins in the face of high international wheat prices. Also, they will continue to look for lowest cost wheat supplies, primarily from Australia, but also from other less dominant suppliers. Mills are expected to purchase just enough high protein wheat to meat blending needs, and not try to increase protein levels for product development and innovation. As a result, U.S. market share is expected to suffer in 2004 and 2005 due to relatively high landed costs of U.S. wheat. Australia will be the main beneficiary. While local millers have complained about low cost flour imports from Australia (which is claimed to be “dumped” and/or under-invoiced), and have threatened to reduce purchases of Australian wheat as a result, this is largely thought to be an empty threat. The mills will still rely on Australian wheat for the lion’s share of milling needs in 2004 and 2005.

The local milling sector is operating at about 60 to 70 percent of total capacity, so there is still plenty of room to respond to demand growth. Furthermore, ample opportunity continues to exist for product diversification. Production still basically consists of three flour types: high protein (with protein content >12%), medium protein (10%-12%), and low protein (8%-10%) flour.

High landed costs, combined with the collapse in feed demand through the first quarter of 2004 due to the local outbreak of bird flu, sharply reduced import demand, and corn imports are forecast to fall to 1 million tons in 2003/04. With expectations of a recovery in the poultry sector as the bird flu is controlled, corn imports are forecast to rebound to 1.1 million tons in 2004/05. Opportunities for U.S. corn are expected to emerge in the latter part of the 2003/04 marketing year and beyond, as local supplies are diminished, and with expectations that supplies from China will continue to be unavailable. In addition, a local corn processor is expected to continue sporadic U.S. corn purchases.

With better than average precipitation during the rainy season plus a slight expansion in area, 2003/04 corn production is estimated at 6.3 million tons. For 2004/05, relatively strong prices are expected to lead to further increases in area planted, plus efforts to increase hybrid seed planting are expected to continue. As a result, production in 2004/05 is forecast to increase slightly over the previous year.

Yields remain low as farmers use only 30 percent of certified seed and hybrid seed use continues to be low. Special credits for operating expenses are available from banks at 6 percent interest rates; however, accessibility to this facility is reportedly difficult. Lack of drying facilities also hinders corn marketing. To enhance quality, some large feed mills have developed contract arrangements with producers, where price commitments are made based on quality delivered.

Corn use is forecast to drop over 10 percent in 2003/04 due to the local Avian Influenza (AI) outbreak, which severely cut demand for compound feed in the first quarter of 2004. Total compound feed production is expected to be off as much as 15 percent in 2004 as a consequence of the AI problem. As of April 2004, poultry producers continued to limit placing new inventories (both layers and broilers) until the full impact of the AI has run its course, and demand and prices rebound. However, some indications suggest the spread of the disease has been checked, and the poultry sector is expected to begin fully rejuvenating during the last quarter of 2003/04. As a result, use is forecast to rebound in 2004/05.

Typically, the animal feed industry consumes approximately 50 percent of all Indonesian corn, but that proportion will be down this year due to the collapse in demand from the poultry sector. Approximately 80 percent of imported corn is used by the feed mill industry, primarily for poultry production. Indonesia’s one and only corn processing plant is beginning to produce, but still must overcome many technical problems. Demand from this plant is expected to approach 20,000 tons per month, which will primarily be supplied through imports.

Typically, the feed sector relies on local supplies during the peak local harvest season (Feb-April) and then switches to imports. However, in 2003/04, because of the relatively good local crop, plus the decline in local demand, local supplies are expected to be available for a longer period.
MGR Archive 10.4.2004
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