Indonesia. Grain and Feed Update. Dec 2014 Jan. 12, 2015
Based on industry data, Post revises marketing year (MY) 2012/13 Indonesian wheat consumption to 6.8 million metric tons (MMT) of wheat equivalent. MY 2013/14 and MY 2014/15 Indonesian wheat consumption is estimated to further increase to 7.1 and 7.3 MMT of wheat equivalent, respectively. Wet dry season during the May - August 2014 period led to higher MY 2013/14 Indonesian rice and corn production. Post revises the estimate of MY 2013/14 Indonesian rice production to slightly increase to 36.3 MMT of milled rice equivalent. Post corn estimates remain unchanged
SITUATION AND OUTLOOK
Several international climatology agencies such as the National Centers for Environmental Predictions/National Oceanic and Atmospheric Administration (NCEP/NOAA) and Japan Agency for Marine-Earth Science and Technology (JAMSTEC) predicted that a moderate El Nino will hit Indonesian between Augusts to November 2014. Despite the other international agencies prediction, the Indonesian Meteorology, Climatology, and Geophysics Agency (Badan Meteorologi, Klimatologi, dan Geofisika, BMKG) observed that until August 11, 2014, the 30-day average and 90-day average of the Southern Oscillation Index (SOI) are still positive. One of the indicators to predict possible occurrence of El Nino is the SOI. The SOI should be below -10 for an El Nino to occur. BMKG recorded that NINO 3.4 was negative during the period of August 13 - 23, 2014. The lowest index of -0.53 was reached on August 17, 2014. Therefore, BMKG predicted that Indonesian climate would be normal in July 2014 with a possibility for a weak El Nino during Augusts to November 2014.
Since El Nino is related to the heating up of the sea surface temperature in Pacific Ocean, El Nino will have more impact to food crops production in the provinces of Sulawesi, Java, Nusa Tenggara, Bali and Papua than in Sumatera. El Nino will increase the air temperature on western part of the Pacific Ocean. It will inhibit the formation of clouds in eastern parts of Indonesian ocean which will lead to lower rainfall. Therefore, El Nino will prolong the dry season in those provinces and pose more risk to food crops production. Normally, the rainy season lasts from October to April, while the dry season takes up the remaining months. However, in July 2014, Indonesia’s sea surface temperature is still warm. Indonesia continued to receive sporadic yet sufficient rainfall during the period of June to August 2014. It confirmed BMKG prediction that El Nino occurrence in Indonesia during MY 2013/14 period is unlikely. Sufficient rainfall provided the opportunity to farmers at low land area to continue growing paddy and farmers at upland area to opt for growing paddy or corn.
Based on industry data, Post revises MY 2012/13 Indonesian wheat consumption to 6.8 million metric tons (MMT) wheat equivalent. It is expected to further increase to 7.1 MMT of wheat equivalent in marketing year (MY) 2013/14. The slowdown of wheat consumption in MY 2014/15 of 7.3 MMT of wheat equivalent compared to Post previous forecast of 7.4 MMT is due to lower consumer purchasing power as a result of the recent fuel price increase.
Post revises MY 2013/14 Indonesian rice production from 36 MMT to 36.3 MMT of milled rice equivalent based on Post’s field observations and the recent release of the Indonesian MY 2013/14 production estimate from the Indonesian Statistics Agency (BPS). The increase is due to higher harvested area in the second and third crop cycle resulting from sporadic yet sufficient rainfall on Java. After obtaining approval from the Government of Indonesia (GOI), the Indonesian National Logistics Agency (BULOG) started to import more medium quality rice in July 2014. Lower domestic supplies and an unchanged government purchasing price (HPP) led to lower domestic procurement, triggering imports.
Based on industry data, Post revises MY 2012/13 Indonesian wheat consumption to 6.8 MMT, compared to the previous estimate of 6.5 MMT. The growth of the flour milling industry, the bakery industry, and food diversification are the reasons behind the increase. This trend extends to MY 2013/14, with Post increasing its consumption estimate from 6.9 to 7.1 MMT.
On November 18, 2014, the new Indonesian administration under President Joko Widodo reduced fuel subsidies. Rising fuel prices will increase prices of other staple foods and lower consumer purchasing power. Therefore, Post revises the MY 2014/15 wheat consumption estimate downward to 7.3 MMT from the previous forecast of 7.4 MMT.
In line with increased consumption, Post revised MY 2012/13 and MY 2013/14 Indonesian wheat ending stocks to 1.56 MMT and 1.113 MMT respectively. Ending stocks are forecast to further decrease to 1.048 MMT in MY 2014/15.
The number of flour mills is growing in Indonesian, increasing competition for flour products in domestic market. Some mills reported lower running capacity due to difficulties selling their products, and are operating at roughly 70 percent of their operational capacity. The current running capacity is a decline from previous year’s running capacity of 70 – 75 percent. A weakened exchange rate (from Rp. 10,277/$1 in July 2013 to Rp. 11,969/$1 in June 2014), combined with increased electricity rates have also led to increased flour production costs. Based on these factors, Post lowers Indonesia’s MY 2013/14 wheat imports from 7.3 to 7.118 MMT. However, the industry is expected to continue growing in line with Indonesian economic growth (targeted to reach 5.8 percent in 2015), and more flour mills are expected to come on line. As a result, Indonesia’s MY 2014/15 wheat imports are estimated at 7.7 MMT.
Australia holds the largest share of Indonesian wheat imports due to price, proximity, and the noodle industry’s preference for Australian standard white wheat. Trade data indicates that in MY 2013/14, Indonesia sourced 55 percent of its wheat from Australia, 17 percent from the United States, and 17 percent from Canada.
Recent Post observations in Central and East Java showed that there are no significant problems effecting the standing corn crops. Farmers are growing their third crops of the year. The second and third crop cycles produce approximately 37 percent and 14 percent of Indonesia’s total corn production. The age of the corn crop varies from early to middle stage. Favorable weather with sufficient rainfall during June to August 2014 allowed upland farmers to plant unirrigated corn. Therefore, Post makes no changes to Indonesia’s corn production estimate.
Currently, farm-gate corn prices in East Java have declined to Rp. 2,600/kg ($214/MT) from Rp. 3,000/kg ($247/MT) due to the ongoing harvest.
Corn constitutes about 80 percent of Indonesia’s feed energy sources. Despite growing domestic production, challenges persist due to inconsistent seasonal supplies and poor post-harvest management that result in high moisture content and high aflatoxin levels. These factors, combined with growing feed mill capacity, are driving import demand. According to trade data, Indonesian corn imports originated in Brazil (48 percent), India (33 percent), and Argentina (15 percent) during the October 2013 to September 2014 period.
On November 3, 2014 the Indonesian National Statistics Agency (Badan Pusat Statistik, BPS) released its second forecast for 2014 Indonesian food crops production. In the publication, BPS increased its forecast for Indonesian paddy production for the second and third crop cycle. Sporadic yet sufficient rainfall throughout Java during the dry season, combined with insignificant pest and disease incidents, led to higher harvested areas and better paddy quality. Referring to the forecast, Post revises the MY 2013/14 Indonesian rice production estimate from 36 to 36.3 MMT of milled rice equivalent.
Recent Post observations in West, Central and East Java in the middle of November 2014 showed that although there are some farmers on irrigated lowland area who will harvest three paddy crops, the majority of land is either fallow or planted with secondary crops such as corn or soybean. Typically, irrigated lowland farms are planted to paddy during the first crop cycle (October – February), followed by paddy on the second crop cycle (March to June), and ended by growing paddy or secondary crops such as corn, mungbean, soybean, peanut, or sweet potato during the third crop cycle (July – October).
The first crop cycle of MY 2014/15 is likely to be delayed until the end of November or early December 2014, similar to MY 2013/14’s first crop. This is in line with BMKG expectation that Indonesia will not receive normal intensity of rainfall through the end of November 2014.
Assuming normal weather during MY 2014/15 and continued utilization of high yielding varieties such as Ciherang, Sinta Nur, Inpari, Memberamo, and Mekonga, Post maintains MY 2014/15 Indonesian rice production as is.
The Indonesian National Logistics Agency (BULOG) set its procurement target at 3.85 MMT of milled rice equivalent for MY 2013/14. This is higher than the 3.2 MMT procurement target set in MY 2012/13. As of July 2014, BULOG has procured a total of 1.9 MMT of milled rice equivalent domestically. This is well below the 2.6 MMT of milled rice equivalent procured during the same period one year previously (July 2013). Total current domestic procurement is approximately 49 percent of the initial MY 2013/14 procurement target. BULOG missed its 60 percent domestic procurement target in July due to lower supplies and a stable government purchasing price despite inflation and competition from private traders. Considering BULOG’s domestic procurement realization and BPS reports of a possible decline in MY 2013/14 Indonesian rice production, the Indonesian Minister of Trade has instructed BULOG to import. This will ensure that BULOG holds at least 2 MMT of stocks by the end of the year, permitting them to maintain stable rice prices. BULOG received the authorization to import a total of 500,000 MT of rice, consisting of 300,000 MT of medium quality rice with a maximum 25 percent broken grains, and 200,000 MT of premium quality rice with a maximum of 5 percent broken grains. The GOI prohibits imports of medium quality rice one month prior to, during, and two months after the main harvest period.
According to Indonesian regulations, private traders can import premium quality rice (basmati, Thai Hom Mali, and japonica) as well as 100 percent broken rice, glutinous rice, and rice for diabetic purposes. Due to the case of imports of medium quality rice being declared as premium quality rice, the Indonesian Ministry of Trade and Indonesian Ministry of Agriculture issued new regulations on Imports and Exports of Rice. Additionally, as of July 2014, MOA has not issued any specialty rice import recommendations. Indonesia imports approximately 200,000 – 250,000 MT of this type of rice, excluding the 100 percent broken rice, glutinous rice, and seed.
Considering the above mentioned, Post revised MY 2013/14 imports to 1.225 MMT compared to the previous estimate of 1.4 MMT. Assuming normal levels of rice imports by private companies, MY 2014/15 Indonesian rice imports are expected to reach 1 MMT.
In MY 2013/14 BULOG will allocate 2.795 MMT of rice to 15,530,897 poor families through the Raskin program. Each family will receive 15 kg of rice/month for 12 months at the price of Rp. 1,600/kg. As of mid-November 2014, BULOG had distributed a total of 2.72 MMT of rice under the Raskin program.
Some rice stocks held by BULOG are used as part of their normal, on-going market operations to increase supply and lower the price of medium quality rice in the domestic market. During the period of January - November 2014, 55,000 MT of rice was distributed under this market operation. Post continues to estimate MY 2013/14 Indonesian rice consumption at 38.5 MMT of milled rice equivalent.
In line with population growth, Post expects Indonesian rice consumption to increase to 39.2 MMT of milled rice equivalent in MY 2014/15.
In line with the revision on production and imports, Post revises MY 2013/14 ending stocks for Indonesian rice to reach 5.501 MMT compared to the previous estimate of 5.376 MMT. Post expects MY 2014/15 ending stocks will decline to 4.301 MMT.
Due to the minor harvest during the off season period, the current price of wet paddy and rice are above the HPP. Currently, the farm gate price of wet paddy in West and Central Java ranges from Rp. 4,000/kg ($330/MT) to 4,800/kg ($396/MT) compared with Rp. 3,800/kg ($313/MT) to Rp. 4,200/kg ($346/MT) in the same period of MY2012/13.
Average daily rice supplies from Javanese production areas to the Cipinang rice wholesale market in Jakarta increased to 2,822 MT in November 2014 from 2,790 MT in July 2014 due to sporadic harvests in Central and East Java as well as supply from market operations by BULOG. The price of medium quality rice at Cipinang wholesale market also increased from Rp. 8,697/kg ($717/MT) at the end of July 2014 to Rp. 8,973/kg ($740/MT) during the last week of November 2014. The higher price is due to less harvest and the recent fuel price increase.
The new GOI administration under President Joko Widodo set the target for Indonesia to become self-sufficient in rice, corn, and soybean by 2017. In efforts to achieve this target, the GOI plans to build 47 water reservoirs and to renovate the existing irrigation canals. When fully established and operational, the 47 water reservoirs are expected to be able to irrigate a total of one million hectares of agricultural field