Australia looks to have lost a notable share of its Indonesian beef market to cheap frozen buffalo imports from India, possibly forever, says big cattle exporter Wellard.
Still squeezed by the cost of sourcing expensive cattle in record-topping Australian markets, Wellard reported a $77.3 million trading loss for the year to June 30, lamenting live exports to Indonesia may not return to previous peaks even if local prices do come down.
Managing director and major shareholder, Mauro Balzarini, said although China offered a real opportunity for export growth as its feeder steer market opened up, it too would depend on Australian-sourced cattle being competitive.
“Persistently high Australian prices have allowed frozen Indian buffalo meat to obtain a foothold in the Indonesian market, which is likely to have an ongoing impact on demand for Australian cattle,” Mr Balzarini said.
“While a segment of the Indonesian market still prefers Australian cattle there is a risk volumes will not return to historical highs.”
Indonesia is Wellard’s most valuable market, but high prices also impacted on sales to another of its key markets, Vietnam, in the past year.
Overall customer resistance to Australia’s big prices resulted in a 29 per cent fall in export numbers shipped by the financially-strained Wellard business in 2016-17.
As demand in South East Asia shrank, excess shipping capacity in live export trade routes subsequently forced freight rates lower and further eroding Wellard’s business margins.
The company’s total revenue for the year fell about $70m to $497.9, resulting in an after tax loss of more than three times its $23.3m loss in 2015-16.
However, Mr Balzarini said some export cattle categories were still in strong demand and paying near historical highs, in particular, light steers for Indonesia, while increased interest for shipping capacity to China and the Middle East was also emerging.
A recent cooling in the heavy cattle market price in Australia had also improved the viability of shipments to markets such as Vietnam.
“But until we see if price reductions are sustained through the upcoming wet season and into 2018, it remains unclear what impact that will have on Wellard’s overall 2017-18 results,” Mr Balzarini said.
“We continue to view exports of slaughter and feeder cattle to China as a real opportunity for the business when delivered Australian cattle prices reach a level that is competitive against the Chinese domestic supply.
“In the meantime, we continue to actively manage the business through the current challenging trading conditions so we can leverage the benefits of our strategic assets when the spread between our purchase price and selling price normalises.”
The company was using excess shipping capacity to increase its activity in the South American cattle export market, although “dealing with new suppliers and less familiar customers produced variable results”.
Wellard finished the past trading year with an improved net cash position of $33m, largely due to a $52m capital raising in May backed by some bigger shareholders including Fulida International Trading Company and the Holmes a Court family’s Heytesbury Limited.
It also collected $17.3m in net proceeds after selling its Ocean Outback transport ship for $34.9m in July.
Mr Balzarini said while he and his management team were “extremely disappointed” by the overall financial results, they continued to work hard to manage the impact of historically high cattle prices.
Overheads had been cut 21pc, the company had an improved cash position, and Wellard still operated one of the largest and the most modern livestock transport fleet in the world.