Highlights

The dry season is arriving later than average throughout Indonesia, thus allowing the expansion of third cycle crop plantings on unirrigated lands. Considering increased corn plantings due to the late dry season as well as an increase in downy mildew incidents, Post’s corn production numbers remain unchanged. Likewise, increased rice plantings are offset by the arrival of brown hopper infestations. As a result, Post’s rice production estimate remains unchanged. Post raises its MY 2016/17 Indonesian wheat feed and residual consumption estimate to 1.8 MMT, based on growing feed wheat demand resulting from Indonesia’s refusal to issue corn import licenses.

SITUATION AND OUTLOOK

The Indonesian Meteorology, Climatology, and Geophysics Agency (Badan Meteorologi, Klimatologi, dan Geofisika, BMKG) reported that Indonesia was hit by a strong La Nina in 1998, a strong El Nino in 2015, and a weak to moderate La Nina in 2016. In early July 2017, BMKG forecast a low probability for an El Nino to hit Indonesia after referring to the sea surface temperature level (SST), El Nino Southern Oscillation Index (ENSO), and the Indian Ocean Dipole Index (IOD). BMKG expects that the Indonesian climate will remain in the neutral range (neither El Nino nor La Nina) through December 2017.

On April 10, 2017 BMKG announced its expectation that the 2017 dry season would arrive later than normal in 45.9 percent, on time in 35.1 percent, and earlier than normal in 19 percent of the Indonesian territory. In line with BMKG forecasts, dry season onset occurred in May, June, or July 2017, and is expected to peak between July and September 2017. East Java, Central Java, and southern parts of Sumatera continue to receive sporadic rainfall, in line with the forecast of a late onset dry season.

Wheat

Post increases its MY 2016/17 Indonesian wheat import estimate to 9.9 MMT (from its previous estimate of 9.0 MMT). The change is due to incremental import increases based on feed mill demand. In line with import increases, Post raises MY 2016/17 Indonesian wheat consumption for feed and residual use to 1.8 MMT, compared to the previous estimate of 1.2 MMT. The U.S. share of wheat exports to Indonesia is increased to 1.0 MMT in MY 2016/17 compared to 799,000 MT imported in MY 2015/16.

Corn

Meteorlogical data indicates sustained rainfall in Lampung and Central Java, (two major corn production areas), enabling continued corn planting on rain-fed production areas. Although reports of downy mildew resulted in some production losses for second crop corn in 2016/17, Post expects that strong third crop cycle production will offset losses. As a result, Post maintains its 2016/17 corn production estimate unchanged. Post increases its 2016/17 Indonesian corn import estimate to 560,000 MT from its previous estimate of 500,000 MT. The increase is due to higher demand from wet corn milling facilities producing corn starch. Post likewise increases its 2016/17 FSI consumption estimate to 3.86 MMT. Restrictions on corn for feed imports remain in place.

Rice

A weak El Nino in MY 2016/17 appears highly unlikely. Low rainfall intensity continues to occur through the dry season, providing opportunities to grow paddy during the third crop cycle on lowland irrigated areas. Additional harvested areas are expected to offset yield declines due to brown hopper infestations in some major producing areas. BULOG reports shortfalls on its domestic procurement target. However, the GOI remains committed to self-sufficiency goals and is not indicating any intention to import rice. As a result, Post’s import estimate remains unchanged.

WHEAT

Trade

There were only five flour mills operating in Indonesia between 1970 and 1998. As of 2017, there are 31 operational flour mills with a total installed capacity of 11.4 MMT, an increase from 10.3 MMT in MY2014/15. Most of the mills are located on Java. Running capacity of the mills reached 70 percent in MY 2015/16. Bogasari, Indonesia’s largest flour mill (with a 52-percent share of the wheat flour market) is currently running at 85 percent capacity and is updating three flour mills located in Jakarta. Additional flour mills on Java are also expanding operations. The industry is expected to grow by five percent in MY 2016/17 due to the price competitiveness of wheat flour-based foods compared to rice and other staple foods. APTINDO further projected that the total installed capacity of Indonesian flour mills will reach approximately 14.2 MMT by MY2024/25.

The Indonesian Ministry of Agriculture (MOA) has targeted zero corn imports for MY 2016/17, and is encouraging mills to use local corn to meet feed milling needs. Additionally, importers report that MOA will not issue import recommendations for corn substitutes such as feed grade wheat, barley, or sorghum. These imports restrictions have not only encouraged farmers to grow corn but have also resulted in high local corn prices, which climbed even higher during April/May lean production period. With mill gate corn prices reaching as high as Rp. 4,600/kg ($346/MT) the landed price of US soft red winter wheat is competitive as a feed ingredient. (The landed price for July shipments of US soft red winter wheat was recorded at Rp. 3,600/kg ($268/MT). Thus, facing import restrictions on corn and feed-grade wheat, some feed mills have opted to buy food-grade wheat from flour mills. APTINDO reported that imports of wheat in April and May 2017 have reached 860,000 MT and 1.14 MMT, respectively, compared to 700,000 MT imported in March 2017. Based on this data, Post has increased its 2016/17 wheat imports estimate to 9.9 MMT, compared to the previous estimate of 9.0 MMT.

Wheat exports to Indonesia for the period of July 2016 to May 2017 were led by Australia (48.54 percent), Canada (16.7 percent), Ukraine (15.6 percent), and the United States (8.66 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. U.S. wheat exports to Indonesia in MY 2016/17 are estimated to reach 1.0 MMT.

Indonesian wheat flour imports during the period of July 2016 to May 2017 declined by 129 percent to 79,430 MT of wheat equivalent, compared to 182,239 MT of wheat equivalent imported during the same period of MY2015/16. 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 98.9 percent market share. Turkey held the largest market share of wheat flour exports to Indonesia (56 percent), followed by The Philippines (18.3 percent), and Canada (9 percent) during the July 2016 to May 2017 period.

Consumption

Considering import increases and assuming that similar conditions will continue to the next marketing year, Post increased its MY 2016/17 and 2017/18 Indonesian wheat consumption estimate for feed and residual use to 1.8 MMT and 700,000 MT, respectively.

CORN

Production

Indonesia’s first corn season normally takes place between November and February (49 percent). The second season takes place from March to June (37 percent), while the third runs from July to September (14 percent). With the delayed arrival of the MY 2016/17 dry season (as explained above) farmers on rain-fed corn producing lands in Lampung, Central Java, and East Java are able to plant corn during the third crop cycle. Above average third crop cycle production is expected to offset the slight yield decline resulting from downy mildew incidents observed in Lampung, Central Java, and East Nusa Tenggara during the second crop cycle. Hence, Post maintains its 2016/17 Indonesian corn production estimate as is.

On May 5, 2017, the Indonesian Ministry of Trade (MOT) issued regulation 27/2017 on staple commodities reference prices. The new regulation revokes MOT regulation 63/2016, but leaves corn reference prices unchanged. Farm gate corn prices are increasing in response to MOA’s refusal to issue corn import recommendations, lean season corn production, and MOT’s reference price. Farm gate corn prices currently range between Rp. 3,600/kg ($270/MT) and Rp. 4,400/kg ($331/MT), compared to Rp. 3,300/kg ($248/MT) to Rp. 3,500/kg ($263/MT) in March 2017. Feed mill-gate corn prices are increasing to Rp. 4,250/kg ($319/MT) to Rp. 4,750/kg ($357/MT) from Rp. 3,900/kg ($293/MT) in March 2017. The first main harvest period of MY2016/17 ran from early January 2017 through March. Farmers are currently planting the third crop cycle of MY 2016/17 to be harvested around September or October 2017.

Consumption

The Indonesian feed mill sector consists of 76 feed mills with a total installed capacity of 22 MMT. Approximately 49 mills are located on Java. The Indonesian Feed Producers Association (Asosiasi Produsen Pakan Indonesia, APPI) has committed to prioritize domestic corn purchases over imports in support of MOA’s corn self- sufficiency goals. Corn accounts for 50 percent of feed formulations and 35 percent of poultry feed production costs. APPI notes that expensive domestic corn prices cannot be passed on to consumers, thus reducing feed mills’ margins. This, combined with the general economic slowdown categorized by the weak rupiah vis-à-vis the dollar, is expected to continue to slow commercial poultry feed consumption growth. APPI estimates that Indonesian feed consumption will increase by 5 percent to 17.0 MMT in MY2016/17.

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 MY2016/17 poultry population is expected to reach 3.5 billion broilers, 200 million layers, and 24.8 million breeders. Demand for aquaculture feed in MY 2016/17 is estimated to increase by 10 percent, slower growth than the 13 percent growth in MY2015/16. Slower growth is due to diseases affecting shrimp production. 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 22 MMT per annum. Millers report that Indonesian mills are running at 70 – 80 percent capacity.

A new wet mill producing corn starch in East Java has been operational since April 2017. Installed capacity of the new mill is 86,000 MT of corn starch per year. The new mill will produce corn gluten meal (12,000 MT of installed capacity per year) and corn gluten feed (48,000 MT of installed capacity per year) in addition to starch. The facility uses imported corn as raw material. As such, Post maintain its 2016/17 feed corn consumption estimate, but increases its estimate of corn food, seed and industrial (FSI) consumption to 3.860 MMT from 3.8 MMT to reflect increasing demand for corn starch raw material.

Trade

MOA continues to restrict imports of corn and corn substitutes for feed production while allowing corn imports for FSI. MOT regulation number 20/2016 on corn imports allows only BULOG to import feed corn. In October 2016 MOT authorized BULOG to import a total of 200,000 MT of corn. BULOG managed to bring in the corn by the end of 2016. BULOG’s intention was to distribute the imported corn to micro, small and medium poultry farmers. However, as of early July 2017 BULOG still holds a total of 52,993 MT of undistributed imported corn. In an effort to prevent storage losses, BULOG plans to sell the imported corn to commercial feed mills.

Despite feed corn import restrictions, the entrance of the new corn wet mill facility is expected to slightly increase imports. Therefore, Post increases its 2016/17 corn import estimate to 560,000 MT from its previous estimate of 500,000 MT. Indonesian corn imports originated from the United States (73 percent), Brazil (13 percent) and Thailand (7 percent) during the period of October 2016 to May 2017.

RICE, MILLED

Production

Favorable weather and sufficient water from reservoirs provided an opportunity for farmers on irrigated lowland areas to plant third crop cycle paddy (late June through early July 2017). Humid field conditions during the dry season, coupled with limited crop rotations, however, resulted in brown hopper infestations throughout Java and southern Sumatera.

Third crop harvest will take place in October 2017, with Post expecting an expansion of paddy planting area in North Sumatera, Lampung, and West Kalimantan due to the late arriving dry season. While planted area is expanding, farmers are also reporting brown hopper infestations. Pesticide companies in Central Java are reporting significant pesticide sale increases in July 2017 in response to these infestations, with the Ministry of Agriculture distributing pesticide assistance in brown hopper infested areas as well as providing additional field officials to respond to the pest problem. Considering expanded plant area and brown hopper infestations, Post maintains its 2016/17 and 2017/18 production estimates unchanged. Post will continue observing the planting progress.

Trade

BULOG has set its procurement target at 3.7 MMT of milled rice equivalent for MY 2016/17. BULOG normally meets 60 percent of its procurement target during the first main harvest period (before June). As of the middle of July 2017, BULOG domestic procurement totaled 1.3 MMT of milled rice equivalent, about 30 percent of its procurement target. This is lower than the 1.96 MMT of milled rice equivalent procured during the same period of MY2015/16. Despite flexibility provided under MOA regulation No. 3/2017 for BULOG to buy paddy and rice above or below the required quality, BULOG is struggling to meet its target. Post notes that prices for medium quality paddy and rice remain well above the government purchasing price, while tighter competition with rice millers is impeding BULOG’s procurement efforts during the first and second harvests.

BULOG is required to maintain a minimum year end stock level of 2 MMT. Indonesian regulations restrict rice imports one month prior to, during, and two months after the main harvest period. Indonesian regulation no. 103/2015 only permits BULOG to import medium quality rice with a maximum 25 percent broken grains. Private companies can import specialty rice (jasmine rice, basmati rice, sushi rice, rice for diabetics and rice seed, for example). The purpose of medium quality rice imports by BULOG is to maintain rice price stability, to overcome post disaster circumstances, and for distributions to the poor and food-insecure. GOI may decide to authorize BULOG to import medium quality rice after considering BULOG stock levels, disparity between average rice prices and the government purchasing price, and the national rice surplus estimate. Private sector importers holding a producer importer identification number can import specialty rice once an import approval from the Ministry of Trade is obtained. The import permit is valid for six months in the current year.

With BULOG’s procurement realization below 50 percent as of July, it seems unlikely that BULOG will meet its target with production from the third harvest (which contributes about 15-20 percent of Indonesia’s total production). Considering that BULOG must still distribute another 1.4 MMT of rice under rice for the poor program, GOI will need to reconsider efforts to maintain BULOG’s stock at the mandated level. Post notes that the authority to procure, import, manage stocks, and set government purchasing prices for paddy and rice rests with the Ministry of Agriculture (Presidential Decree No. 20/2017). MOA is expected to continue to aggressively pursue rice self-sufficiency policies. Therefore, it is unlikely that the GOI will authorize BULOG to import in the near future.

During the January to May 2017 period, Global Trade Atlas reported that Indonesia imported rice from Thailand (53 percent) and India (22 percent). All of the rice was imported by the private sector. Indonesian regulations state that only BULOG can import rice with a maximum of 25 percent broken, while state own companies, provincial owned companies, and private sector exporters can import rice with a maximum of 5 percent broken. Indonesia exported rice to Sri Lanka (92 percent), Canada (4 percent), and Ghana (1 percent) during the period of January to May 2017. Total volume exported was 5,380 MT. Post does not make any changes to Indonesian trade estimates.

Consumption

In MY 2016/17 the GOI modified the raskin program, changing its name to “Rice for the Prosperous (beras sejahtera, rastra).” The program is now broken into two parts: the regular rastra distribution as well as the unintuitively named non-cash food aid program (Bantuan Pangan Non Tunai, BPNT), which distributes cash cards for participants to redeem rice and sugar on the open market. BULOG will continue to implement both programs. In MY 2016/17 BULOG will distribute rastra to a total of 14.4 million families, while another 1.1 million families (formerly raskin recipients) will receive the non-cash food aid (BPNT) card. Every family under the regular rastra program will receive 15 kg of rice at the price of Rp. 1,600/kg ($119/MT) per month. Under BPNT, the GOI will deposit Rp. 110,000 ($8.20) onto each card. The card recipients who reside in 44 pilot project cities can swipe the card at selected stores for a total of 10 kg of rice and 2 kg of sugar. As of middle of July 2017, BULOG has distributed a total of 1,051,000 MT of milled rice to rastra recipients.

Post noticed no significant changes in rice consumption trends. Therefore, Post maintains the estimate of MY 2016/17 and MY 2017/18 as is.

Prices

The price of wet paddy and rice remains above the government’s purchasing price. Current farm gate prices of wet paddy in Java range from Rp. 3,500/kg ($263/MT) to 4,800/kg ($361/MT). Despite some brown hoppers infestations, rice traders reported that small harvests on Java have maintained continuous supply to Jakarta’s rice wholesale market. Combined with lower post-Ramadhan demand, medium quality rice prices at the Cipinang wholesale market have fallen slightly, from Rp. 10,200/kg ($767/MT) in June 2017 to Rp. 10,000/kg ($752/MT) on July 24, 2017.

Wheat

Wheat

2015/2016

2016/2017

2017/2018

Market Begin Year

Jul 2015


Jul 2016


Jul 2017


Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

0

0

0

0

0

0

Beginning Stocks

1316

1316

2057

2057

2257

1657

Production

0

0

0

0

0

0

MY Imports

10116

10116

9900

9900

9500

9500

TY Imports

10116

10116

9900

9900

9500

9500

TY Imp. from U.S.

799

799

0

1000

0

940

Total Supply

11432

11432

11957

11957

11757

11157

MY Exports

275

275

300

300

300

300

TY Exports

275

275

300

300

300

300

Feed and Residual

1600

1600

1200

1800

500

700

FSI Consumption

7500

7500

8200

8200

8600

8600

Total Consumption

9100

9100

9400

10000

9100

9300

Ending Stocks

2057

2057

2257

1657

2357

1557

Total Distribution

11432

11432

11957

11957

11757

11157

Yield

0

0

0

0

0

0

Corn

Corn

2015/2016

2016/2017

2017/2018

Market Begin Year

Oct 2015


Oct 2016


Oct 2017


Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

3300

3300

3400

3400

3500

3500

Beginning Stocks

1666

1666

1823

1823

1013

1018

Production

10500

10500

10900

10900

11350

11350

MY Imports

1778

1778

500

560

500

500

TY Imports

1778

1778

500

560

500

500

TY Imp. from U.S.

185

185

0

420

0

180

Total Supply

13944

13944

13223

13283

12863

12868

MY Exports

21

21

10

5

10

5

TY Exports

21

21

10

5

10

5

Feed and Residual

8000

8000

8400

8400

8600

8600

FSI Consumption

4100

4100

3800

3860

3600

3600

Total Consumption

12100

12100

12200

12260

12200

12200

Ending Stocks

1823

1823

1013

1018

653

663

Total Distribution

13944

13944

13223

13283

12863

12868

Yield

3.1818

3.1818

3.2059

3.2059

3.2429

3.2429