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The 23-year-old Yorkshireman, who won silver at the 2014 Commonwealth Games, lost every round on all the judges' cards in a below-par performance.
Reigning Asian Games champion Butdee, 31, floored Ashfaq with a jolting left hand midway through the second round.
"I know I am well capable of beating guys like that," said Ashfaq.
"But I'm a strong believer that what is meant to be will be and it wasn't my night.
"I just wasn't myself. But on the night I was beaten by the better kid.
"I'm in the best shape of my life. I guess he's a lot older than me, he's been to three Olympics and that maybe helped him."
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She officially opened the games, which is marking its 150th anniversary.
And she was photographed pouring whisky from a quaich to anoint the new Aboyne Games caber, and meeting competitors.
The monarch is thought to be in residence at nearby Balmoral, the Royal Family's Scottish holiday home.

Some 148,976 cars rolled off UK production lines last month, down from 150,060 in the same month last year.
But, for the 10 months to end-October, production was still running at its highest since 2005, driven by exports.
Overseas demand rose 1.5% in October year-on-year, but domestic demand fell 8.3%.
About 80% of UK car production went for export, according to the figures.
"Despite a small drop in overall output last month, the industry has delivered a robust performance so far this year, particularly in terms of exports," said Mike Hawes, SMMT chief executive.
"Given the slowdown we've seen in several key global markets in recent months, UK automotive manufacturing still remains in a strong position."
For the year so far, production is at 1,318,452, up 2.8% on the figure of 1,282,080 in the same period for 2014.
On Tuesday, Europe's trade body for the car industry, the Association of European Carmakers, reported that car sales across the EU slowed sharply in October from the month before.
Analysts suggested that buyers may have been put off purchases while they awaited the outcome of investigations into how carmakers report emissions data, sparked by the discovery that VW cheated emissions tests.
Bantamweight Qais Ashfaq became the fifth British boxer to exit the Rio 2016 Olympic Games after being beaten by Thailand's Chatchai Butdee.
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The Queen has made a surprise visit to the Aboyne Highland Games in Aberdeenshire.
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UK car production fell by 0.7% last month compared with October 2014, according to figures from the Society of Motor Manufacturers and Traders.