Highlights

Indonesia is transitioning from 2015's El Nino-induced dry conditions to the wet weather associated with a mild La Nina phenomenon. Dryland corn and rice planting area has thus expanded at the expense of soybean, sugar, and tobacco. First crop 2016/17 plantings are on-time, with most rice and corn in the ground in October or early November 2016. Rice and corn production is expected to increase due to favorable weather conditions, while imports will slightly decline. Wheat imports are expected to contract to 8.6 MMT in MY 2016/17 following Indonesian limitations on feed-grade wheat imports.

SECTION I. SITUATION AND OUTLOOK

Indonesian grain production faced challenging meteorological conditions during 2015's El Nino event. As of November 2016, Indonesia's weather situation has reversed, characterized by wet conditions brought on by a weak La Nina phenomenon. The Indonesian Meteorology, Climatology, and Geophysics Agency (Badan Meteorologi, Klimatologi, dan Geofisika, BMKG) that:

1. By the end of July 2016, the sea surface temperature level in the middle of Pacific Equator decreased, transitioning from neutral to a weak La Nina. The weak La Nina phenomenon is expected to continue until early 2017. Weak La Nina events in Indonesia are characterized by an early onset rainy season, with rainfall at average or slightly elevated levels.

2. An early onset rainy season (2016/17) is supported by data from the Indian Ocean Dipole index (IOD). The IOD has been consistently negative since May 2016, with BMKG forecasting that this will continue through November 2016.

3. Indonesian sea surface temperatures in November 2016 will remain at average levels, but are expected to cool by January 2017.

Based on the above mentioned factors, Post expects that approximately 67.5 percent of Indonesia will experience an early onset rainy season. 19.3 percent of Indonesia will experience an on-time rainy season, while the remaining 9.6 percent of Indonesia will experience a late onset rainy season.

Indonesia's rainy season typically starts in October. Given these factors, Post expects that most major food crop producing areas, especially those in Sumatera and Java, will receive sufficient rainfall throughout 2016.

Wheat

Post revises marketing year MY 2015/16 Indonesian wheat consumption estimates to 9.386 MMT from the previous estimate of 7.5 MMT. The increase is mainly driven by higher food industry consumption through the growth of the instant noodle market and new to market bakeries.

Corn

Post revises its MY 2015/16 Indonesian corn production estimate to 10.5 MMT from the previous estimate of 9.3 MMT due to a larger harvested area in the MY2015/16 third crop cycle. The area expansion is the result of favorable weather that prompted farmers in upland rain-fed areas to grow corn in the place of soybean, sugar, and tobacco. Previously idle land has also been put under cultivation under the authority of state-owned-company Perhutani. Corn production is also benefitting from hybrid seed adoption and the GOI's seed subsidy program. Assuming normal weather, production is expected to increase to 10.2 MMT in MY 2016/17, compared to the previous estimate of 9.6 MMT. MY 2015/16 Indonesian corn imports are estimated to further decline to 2.0 MMT due to continued corn import restrictions imposed by the government.

Rice

The 2016/17 weak La Nina event supports Post's MY 2015/16 and MY 2016/17 rice production estimates. The additional rain boosted paddy production in rain-fed areas during the MY 2015/16 third crop cycle. Post therefore leaves MY 2015/16 and MY 2016/17 rice production estimates unchanged. Rice import estimates are expected to decline. Post notes that the National Logistics Agency (BULOG) procured more Indonesian-produced rice in MY 2015/16 than expected, and as a result, the Government of Indonesia (GOI) is not expected to authorize BULOG to import additional rice through the remainder of MY 2015/16. Based on these considerations, Post maintains MY2015/16 Indonesian rice imports at 1.2 MMT. Despite a higher production forecast, rice imports are expected to increase to 1.25 MMT in MY 2016/17.

WHEAT

Trade

Indonesian feed mills continue to face difficulties meeting feed corn demand due to 2015/16 weather-related production declines and GOI restrictions on corn imports. In response to low local supplies and import barriers, feed mills are substituting corn with imported feed wheat. 22 feed mills imported feed wheat, resulting in a feed wheat import surge since September 2015. Global Trade Atlas and APTINDO data indicate that wheat imports for MY2015/16 have reached a total of 9.8 MMT compared to 7.3 MMT in MY2014/15. Considering the aforementioned factors, Post maintains Indonesia's MY 2015/16 wheat import estimate at 10.116 MMT.

Feed millers responded to corn shortages instigated by the GOI's self-sufficiency policy with a surge in feed wheat imports. However, the Ministry of Agriculture (MOA) stopped issuing import recommendations for feed wheat in June 2016, after recognizing that feed wheat imports posed a threat to this policy. MOA's shutdown of feed wheat imports, combined with weak exchange rates is expected to slow Indonesian wheat import growth from an average annual rate of 6-7 percent to approximately 5 percent. At these levels, Indonesian wheat imports are expected to contract to 8.6 MMT in MY 2016/17. Wheat exports to Indonesia during the MY2015/16 were led by Australia (37.36 percent), Ukraine (17.82 percent), Canada (15.95 percent), Argentina (13.22 percent), and the United States (8 percent).

Australia's majority market share is due to the noodle industry's preference for Australian standard white wheat, price, and Australia's close proximity. Considering these factors, U.S. wheat exports to Indonesia in MY 2015/16 are estimated to reach 799,000 MT.

Importers note that MY2015/16 Indonesian wheat flour imports declined by five percent to 196,915 MT of wheat equivalent, compared to 207,660 MT of wheat equivalent imported in MY 2014/15. The decline is mainly due to the continued weakness of rupiah against the U.S. dollar. Domestic flour dominated the market throughout calendar year (CY) 2016, with a 98 percent market share. Turkey held the largest market share of wheat flour exports to Indonesia (63 percent), followed by Ukraine (16 percent), and Sri Lanka (9 percent) in MY2015/16.

Consumption

MY 2015/16's feed and residual wheat consumption estimate is maintained at approximately 1.6 MMT. MY 2016/17 feed wheat consumption is expected to decline to 400,000 MT, based on the discontinuation of feed wheat import recommendations. MY 2015/16 food wheat consumption is estimated to increase by 8.1 percent to 7.786 MMT, compared to the previous estimate of 7.2 MMT in MY2014/15. This increase reflects population growth, several new-to-market instant noodle brands, and growth in the high-end retail bakery segment. MY 2016/17 food wheat consumption is forecast to further grow to 8.0 MMT.

CORN

Production

Indonesia's first corn season normally takes place from November to February (49 percent). The second season takes place from March to June (37 percent), while the third runs from July to September (14 percent). No significant pest and disease incidents were reported during the first corn crop cycle of MY 2015/16. With the arrival of La Nina weather during the second crop cycle (as explained above), farmers on lowland rain-fed areas were able to increase paddy plantings (their crop of preference) over corn due to sufficient rainfall. Recent field observations in Central Java and West Nusa Tenggara revealed that some farmers were able to expand planting areas through a collaboration with state-owned-company Perhutani on previously idle GOI land. This has resulted in an increase corn production during the 2016 third crop cycle.

GOI restrictions on corn imports, combined with a price floor, have increased farm gate corn prices, stimulating hybrid seed sales and planting shifts away from soybeans and tobacco. A hybrid sales increases ranging from five to 30 percent during the MY2015/16 third crop cycle, led by newly released downy mildew and rust resistant cultivars. Indonesian hybrid corn seed demand in 2016 reached 40,000 MT compared to 36,000 MT in 2015. First and second crop cycle yield declines due to downy mildew and stem rot have been offset by area expansion in the third crop cycle.

Based on the aforementioned factors, Post revises MY 2015/16 corn harvested area from 3.18 to 3.3 million hectares. During the first two crop cycles, higher use of mildew resistant hybrid corn seed is estimated to increase MY 2015/16 yield to 3.18 MT/hectare. Thus, Post expects MY 2015/16 Indonesian corn production will increase from 9.4 to 10.5 MMT. Sufficient rainfall continues to provide opportunities for both corn and soybean farmers on rain fed upland land to grow corn during the current MY 2016/17 first crop cycle. Therefore, Post increases MY 2016/17 corn harvested area estimate from 3.14 to 3.2 million hectares. Assuming no significant pest and disease incidents, MY 2016/17 corn production is expected to increase from 9.6 to 10.2 MMT.

Farm-gate corn prices ranged from Rp. 3,200/kg ($238/MT) in Lampung to Rp. 3,800/kg ($283/MT) in East Java on November 22, 2016. These prices are above the government purchasing price of corn of Rp. 3,150/kg ($235/MT), as forth set in Indonesia's Ministry of Trade (MOT) regulation 63/2016 “Farmer Level Purchase and Consumer Level Selling Reference Prices" . The price of hybrid corn seed has been relatively stable, ranging from Rp. 60,000/kg ($4.6/kg) to Rp. 85,000/kg ($6.5/kg). (This compares with Rp. 60,000/kg ($4.6/kg) to Rp. 80,000/kg ($6.1/kg) in 2015).

Consumption

The current economic slowdown, categorized by the weak rupiah-U.S. dollar exchange rate and depressed consumer purchasing power, is expected to continue to slow commercial poultry feed consumption growth. APPI estimates that Indonesian feed consumption will increase by 8 percent to 17.3 MMT in CY 2016.

The poultry industry consumes approximately 83 percent of Indonesia's animal feed. Aquaculture consumes 11 percent and the remaining six percent is consumed by cattle and swine. The CY 2016 poultry population is expected to reach 3.224 billion broilers, 150 million layers, and 24.8 million breeders. Demand for aquaculture feed in CY 2016 is estimated to increase by 13 percent due to an increase in demand for shrimp in the international market. 84 feed mills are currently operational in Indonesia, with expansion continuing. Due to the continued expansion of existing mills, there is an additional 1.5 MMT installed capacity, raising total installed capacity of Indonesian feed mills to 21 MMT per annum. Indonesian mills are running at 70 – 80 percent capacity.

Despite higher demand for corn from feed mills and an expected lower supply from the domestic market, MOA continues its corn import restrictions. These restrictions held MY 2015/16 feed corn consumption at the MY 2014/15 level of 8.0 MMT, with the balance being met from feed wheat imports. MOA is planning to fully stop corn imports in MY 2016/17. MY2016/17 feed corn demand will increase by six percent. Considering the contrast between market forces and the GOI's stated intentions, Post revises its MY 2016/17 feed corn consumption forecast from 7.6 to 8.5 MMT. The corn for human consumption is decreasing by 6.33 percent per annum, leading Post to revise its human consumption forecast to 4.2 MMT in MY 2014/15 and 4.1 MMT in MY 2015/16. Corn consumption is expected to continue declining to 4.0 MMT in MY 2016/17 as consumers substitute rice and wheat-based food products.

Indonesian feed millers are heavily reliant on imported feed ingredients. Factors inhibiting feed millers from sourcing ingredients locally include low protein content, high raw fiber content, rancidity, limited and inconsistent corn supplies for commercial scale feed millers, and storage challenges. Given these challenges and Indonesia's expanding livestock sector.

Trade

Indonesia's corn demand exceeds domestic supply, with corn constituting about 80 percent of Indonesian feed energy sources. Domestic production, while increasing, faces challenges due to inconsistent seasonal supplies and poor post-harvest management (resulting in high moisture content and high aflatoxin levels). Strong domestic demand has brought MY2015/16 Indonesian corn exports down to 25,000 MT compared to 255,000 MT in MY2014/15. Post expects MY2016/17 Indonesian corn exports to continue falling to 20,000 MT, for the same reasons.

Until November 6, 2015, feed mills importing corn followed the policies set out in a 2002 Director General for Livestock and Animal Health Service's (DGLAHS) circular letter. This changed on November 25, 2015, with the issuance of MOA regulation 57/2015 “Imports and Exports of Plant Based Feed Ingredients." Regulation 57 states that the Minister of Trade will issue import permits for any plant-based feed ingredients imports. In order for this regulation to be implemented, the Ministry of Trade must also issue a corresponding regulation to MOA 57/2015 for the administration of import licensing. To date, the Ministry of Trade has not issued any regulation related to this matter, creating uncertainty for corn importers and livestock producers.

On March 24, 2016 the Indonesian Minister of Trade issued regulation 20/2016 on Corn Imports. The regulation stated that corn can be imported to fulfill food, feed, and industrial raw material demand, and that this demand will be determined through an Inter-ministerial coordination meeting. Regulation 20/2016 also established state-owned trading company BULOG as the sole importer of feed corn, while any private company holding a general importer identification number (API-U, Angka Pengenal Importir Umum) or producer importer identification number (API-P, Angka Pengenal Importir Produser) can import corn for food or industrial raw materials. In order to be able to import, BULOG must obtain import approval from the Minister of Trade. Prior to getting the import approval, BULOG must first obtain an import recommendation from MOA. Before importing corn, private companies must also obtain import approval from the Ministry of Trade. MOT will issue import approvals at the beginning of each quarter. Import approvals for BULOG will be valid in accordance with the import recommendation stipulation date. Import approval for private companies will be valid for the period of three months commencing from the date of the import approval issuance.

In October 2016, MOT issued a Letter of Import Approval (SPI) to BULOG to import 200,000 MT of corn. BULOG targeted delivery of the full allocation corn no later than December 25, 2016. Prior to the issuance of the import approval, BULOG conducted a tender to procure the imported corn. One requirement to join the tender was every company wishing to bid must be a member of the Grain and Feed Trader Association (GAFTA), thereby excluding feed mills. BULOG intends to distribute the corn primarily to micro, small, and medium enterprises (SMEs) and to maintain national stocks.

Despite growing feed mill capacity, the above mentioned restrictions are expected to impede import growth. Therefore, Post revises its MY 2015/16 corn import estimate down from 3.0 to 2.0 MMT. MY 2016/17 corn imports are forecast to remain on par at 2.0 MMT, reflecting Indonesia's slight forecasted production increase and continued corn import restrictions. Indonesian corn imports originated from Argentina (48.8 percent), Brazil (45.65 percent), and the United States (4.31 percent) in MY2015/16.

RICE, MILLED

Production

The 2016/17 weak La Nina event supports Post's MY 2015/16 and MY 2016/17 rice production estimates, with additional rain boosting paddy production in rain-fed areas during the MY 2015/16 third crop cycle. MY 2016/17 first crop plantings were on-time, based on sufficient rainfall and irrigation. This contrasts with MY 2015/16 first paddy crop plantings, which were delayed due to the late (December) arrival of the rainy season that year. Post field observations in West and Central Java confirmed that farmers in northern coastal Java planted the first crop in late October 2016. Typically, irrigated farms are planted to paddy during the first and second crop cycles (October – February and March – June), and followed by paddy or secondary crops such as corn, mung bean, soybean, peanut, or sweet potato during the third crop cycle (July – October).

With the normal start of the first crop cycle, it is expected that the first main harvest will take place during February and March 2017. This will immediately be followed by a second cycle of paddy. The second paddy harvest is expected to take place in mid or late June and July 2017.

Trade

BULOG has set its procurement target at 3.2 MMT of milled rice equivalent for MY 2015/16. BULOG normally meets 60 percent of its procurement target during the first main harvest period. Despite the delay in the MY 2015/16 first harvest, BULOG procurement totaled 2.81 MMT as of the end of late November, 2016. This is higher than the 1.94 MMT procured during the same period last year.

BULOG is required to maintain a minimum year end stock level of 2 MMT. Although domestic procurement realization is still below the target and BULOG must distribute one month's worth of raskin allocation in December 2016, the prescribed level of MY2015/16 ending stock can be achieved. Hence, to date, the GOI has not authorized BULOG to import additional rice.

Indonesian regulations restrict rice imports one month prior to, during, and two months after the main harvest period. Indonesian regulations only permit BULOG to import medium quality rice; while private companies can import specialty rice (jasmine rice, basmati rice, sushi rice, rice for diabetics and rice seed, for example). However, since the end of 2014, MOA has refused to issue any import recommendation for japonica rice, claiming that japonica rice can be substituted with similar Indonesian varieties. On December 8, 2015, MOT stipulated in Regulation 103/2015 on Rice Imports and Exports that japonica rice (HS. 1006.30.99.00) is permitted for import into Indonesia. In order for japonica rice imports to resume, the Ministry of Agriculture must agree to issue import recommendations.

Post expects that MY 2015/16 imports will decrease to 1.2 MMT from the previous estimate of 2.0 MMT, based on estimated higher rice production, carry over imports from MY 2014/15, and higher demand for specialty rice. Despite the MY 2016/17 production forecast increase, Post expects MY 2016/17 Indonesian rice imports to slightly increase to 1.25 MMT. Increased imports are required to offset low MY 2015/16 ending stocks.

Consumption

In MY 2015/16, BULOG will allocate 2.795 MMT of rice to 15,530,897 poor families under 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 November 2016, BULOG has distributed approximately 2.63 MMT of rice under the Raskin program. Data from the 2013 Indonesian National Economic Survey (Susenas) shows an average decline in per capita rice consumption of 1.62 percent per annum. The decline in rice consumption is partly offset by increasing consumption of wheat flour-based foods such as instant noodle and bread. The price of a pack of instant noodle is approximately Rp. 2,000/pack ($0.15/pack), compared to Rp. 9,400 – 11,750/kg ($0.70 - $0.87/kg) for rice. Post therefore maintains the MY 2015/16 rice consumption estimate at 38.0 MMT, in-line with the increase in food wheat consumption. Post expects Indonesian rice consumption to remain unchanged at 38.0 MMT in MY 2016/17.

Stocks

Post estimates MY 2015/16 rice ending stocks to decrease to 3.511 MMT, tracking with import declines. MY 2016/17 ending stocks are expected to further decline to 3.361 MMT based on lower beginning stocks and stagnant consumption. Post notes that increased rice imports will support stock levels, but that 2016/17 ending stocks are still expected to remain low.

Prices

The price of wet paddy and rice remain above the government's purchasing price, despite the ongoing harvest. Current farm gate prices of wet paddy in Java range from Rp. 3,650/kg ($272/MT) to 4,500/kg. The average price of medium quality rice at Cipinang wholesale market has been stagnant at Rp. 9,900/kg ($737/MT) since July 2016.

PSD TABLES

Wheat

Market Begin Year

Indonesia

2014/2015

2015/2016

2016/2017

Jul 2015

Jul 2015

Jul 2016

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

0

0

0

0

0

0

Beginning Stocks

1485

1485

1316

1316

2057

1771

Production

0

0

0

0

0

0

MY Imports

7478

7478

10116

10116

8500

8600

TY Imports

7478

7478

10116

10116

8500

8600

TY Imp. from U.S.

561

562

799

799

0

800

Total Supply

8963

8963

11432

11432

10557

10371

MY Exports

282

282

275

275

300

300

TY Exports

282

282

275

275

300

300

Feed and Residual

165

165

1600

1600

1600

400

FSI Consumption

7200

7200

7500

7786

7700

8000

Total Consumption

7365

7365

9100

9386

9300

8400

Ending Stocks

1316

1316

2057

1771

957

1671

Total Distribution

8963

8963

11432

11432

10557

10371

Corn

Market Begin Year

Indonesia

2014/2015

2015/2016

2016/2017

Oct 2015

Oct 2015

Oct 2016

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

3100

3100

3150

3300

3140

3200

Beginning Stocks

1741

1741

1666

1666

1446

2041

Production

9000

9000

9300

10500

9600

10200

MY Imports

3381

3381

1800

2000

2000

2000

TY Imports

3381

3381

1800

2000

2000

2000

TY Imp. from U.S.

35

35

0

120

0

120

Total Supply

14122

14122

12766

14166

13046

14241

MY Exports

256

256

20

25

20

20

TY Exports

256

256

20

25

20

20

Feed and Residual

8000

8000

7200

8000

7600

8500

FSI Consumption

4200

4200

4100

4100

4000

4000

Total Consumption

12200

12200

11300

12100

11600

12500

Ending Stocks

1666

1666

1446

2041

1426

1721

Total Distribution

14122

14122

12766

14166

13046

14241

Rice, Milled

2014/2015

2015/2016

2016/2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2017

Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

11830

11830

12100

12100

12160

12160

Beginning Stocks

5501

5501

4111

4111

3511

3511

Milled Production

35560

35560

36200

36200

36600

36600

Rough Production

56000

56000

57008

57008

57638

57638

Milling Rate (.9999)

6350

6350

6350

6350

6350

6350

MY Imports

1350

1350

1100

1200

1250

1250

TY Imports

1350

1350

1100

1200

1250

1250

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

42411

42411

41411

41511

41361

41361

MY Exports

0

0

0

0

0

0

TY Exports

0

0

0

0

0

0

Consumption and Residual

38300

38300

37900

38000

37700

38000

Ending Stocks

4111

4111

3511

3511

3661

3361

Total Distribution

42411

42411

41411

41511

41361

41361

g