Southeast Asian feedmeal industry to be hit hard in 1998

Southeast Asian feedmeal industry to be hit hard in 1998

SINGAPORE (Reuters): Southeast Asia's feedmeal industry will
be hit hard next year by the economic turmoil in the region, with
production expected to fall 15 to 20 percent as meat consumption
declines, traders said yesterday.

Indonesia is likely to be hit the hardest, with feedmeal
output falling by 30 to 40 percent in 1998 in the wake of the
rupiah's sharp depreciation against the U.S. dollar.

"Indonesians, Thai and Malaysians want to get out of (import)
contracts because demand has fallen," one senior trader from an
Indonesian trading house said.

"These people are obviously not getting extensions on their
LCs (letters of credit). There are some vessels afloat with
soymeal cargo but with no specific buyers," he added.

A Singaporean trader said he expected feedmills in the region
to merge in order to weather the economic onslaught, adding that
smaller ones might "go down the drain".

"Feed production in Indonesia is expected to decline by 30
percent," he said. "The region, as a whole, will see output
falling by 15-20 percent, easily."

"Survival of the feedmills will depend on their balance
sheets. The big ones which expanded too fast using bank loans,
especially U.S. dollar loans, will face big problems."

Most Southeast Asian currencies have weakened significantly
against the U.S. dollar in the last six months following a loss
of investor confidence in the economies.

The Indonesian rupiah has lost 50 percent of its value against
the dollar, making imports of corn and soymeal, which are
denominated in U.S. dollars, expensive.

Traders said they did not expect Southeast Asian feedmeal
production capacity to return to normal levels for at least two
years.

"At least two years, but I doubt so," one said, adding that
Indonesia produced about five million tonnes of feedmeal a year,
while Malaysia produce 4.5-5.0 million tonnes.

Another trader said he expected Indonesian production to
plunge by about 40 percent next year. "Indonesia will be buying
much less corn and soymeal next year," he said.

"The overall situation is bad. We are seeing a lot of supply
and a slowdown in demand," he said. "Feedmills might have to
merge or close, depending on the country."

Traders also said the weak import scenario would help minimize
the impact of poor quality Indian soymeal on the market.

"I don't think we are going to see buyers rush into the U.S.
market for meal," one trader said. "At the end of the day, if the
meal is cheap enough from India, buyers will take it."

Indian traders have said some 100,000 tonnes of soymeal had
been rejected at various ports in India, and roughly the same
quantity had been returned from their destinations abroad because
of high moisture and low protein content caused by unseasonal
rains over the past two weeks.

One trader in Singapore said the occurrence of high moisture
in Indian soymeal was not unusual, but added that the problem
took on a "larger dimension" this year.

"I don't see any major problems arising from this if you buy
from reputable shippers," he said. "We are very strict on
quality, and have not had any problems yet."

A Philippine feedmill executive said Indian soymeal prices
could be depressed by the quality woes, but that Philippine
buyers were unlikely to take advantage of the situation because
of a slowdown in the poultry and livestock industries.

"Prices of Indian soymeal will surely be affected, but I do
not expect much buying from the Philippines. Everything's slowing
down due to the depreciation of the peso against the dollar," the
executive said.

"If people (Philippine importers) buy, it will depend on how
low the price will go and if their firms accept poor quality
soymeal vis-a-vis U.S. soymeal," he said.