Indonesia's grains move sends positive signal

Indonesia's grains move sends positive signal

SINGAPORE (Reuters): Strife-torn Indonesia's move to lift a three-and-half-month ban on South American grains could not have come at a better time.

The rupiah is strengthening, the feed market is facing a supply squeeze, South American grains are currently the cheapest option available and importers have started dipping their toes in the market after a long lull.

Asia's grains trade sees it as one of the first market- friendly moves by Indonesia under new President Megawati Sukarnoputri as businesses hope for a return of political and economic stability following last week's political transition.

"The move certainly signals that things are moving for the better. It is a sign for business to hope for more market- friendly policy decisions in the future," said Bob Rusli Tjetjep, general manager of PT Panganmas Inti Persada, a Jakarta-based commodity firm.

The Asian grains trade was stunned when Indonesia banned South American grain in mid-April due to foot-and-mouth fears -- at a time when the South American harvest was at its peak -- robbing Indonesian buyers of the chance to buy the cheapest option available.

Indonesian buyers were obliged to fill most of their needs with purchases from the United States at prices up to $20 a ton higher than Argentine or Brazilian supplies.

"When all other Asian countries were buying -- and only buying South American corn and soymeal -- there was no reason for Indonesia to ban them in the first place," said one Singapore- based trader.

"South American supplies are still the cheapest and some Indonesian buyers, who lost the opportunity earlier, can cover a part of their needs quickly," the trader added.

Indonesia's Agriculture Ministry said on Tuesday it had decided to lift the ban because of the reduced threat of the foot-and-mouth disease. But the government will make regular reviews of the situation and reimpose the ban if fresh cases of the outbreak are reported.

Indonesia was declared free of foot-and-mouth in 1990.

Since last week's ouster of the country's first democratically elected president, Abdurrahman Wahid, the rupiah has gained more than 18 percent against the U.S. dollar.

"With the rupiah gaining ground sharply, the decision to lift the ban is definitely icing on the cake," said one Jakarta-based grains trader. "We are hoping that we will be able to partially offset the damage to our trade in the past months."

At the start of the year, Indonesia was hoping its feed output would rise to about 5.10 million tons in 2001 from 4.60 million last year, but the slowdown in recent months prompted trade officials to revise down the figure to zero growth.

"A supply squeeze situation for feed ingredients partly contributed to the slowdown in Indonesia's commercial feed production in the past months," said another Singapore-based grains and oilseeds trader.

"But now with supplies expected to rise -- and at a cheaper price from South America -- there is hope for some growth," the trader added.

Although some Asian grain traders remain hesitant over South American grain contracts, many of them expected business to flow in as the market was still not covered for all of September.

"After looking at the government's statement that it could reimpose the ban, some traders are shying away from fresh deals," said one trader. "They don't want to again face the trauma of diverting and re-diverting cargoes."

Many South American cargoes, which were stranded at sea after Jakarta suddenly banned South American grains, were diverted to other destinations such as Malaysia, Thailand and Taiwan at discounted prices.