Agri-Food

Agri-Food 

Broiler industry outlook. Japan is reopening to fresh broilers from Thailand
beginning 1Q14, after a ban since 2004 in response to the avian influenza disaster.
Japan has since been importing ~200,000 tons of fresh broilers from Brazil and
switching to Thailand could add Bt18bn to Thailand’s already large exports to Japan
(Bt33.8bn in cooked chicken). By our estimates, this will add 1.4% to CPF net profit and
3.3% to GFPT’s annually. At the same time, we advise caution with regards to supply:
the raise in quota to Europe in early 2012 encouraged additional supply and this could
happen again. We believe the good news about exports to Japan is priced in.
Broiler price update. Dec domestic broiler price rose 10.5% to Bt42/kg from Bt38/kg
in Nov. This gave an average 2013 price of Bt42.75/kg, 18.8% above 2012’s Bt36/kg.
Swine price update. December price was Bt68/kg, stable MoM; 2013 average price
was Bt66.9/kg, +19%YoY. 2012 was another good year for the livestock business.
Feed costs still heading down. Major animal feed ingredients are corn (40%),
soybean meal (30%) and fish meal (30%), prices for which continue to trend down.
- Corn price in December was Bt7.4/kg, -6%MoM, from peak of Bt10.35/kg in
April, with 2013 average at Bt9.38/kg (-11%YoY), good news for feed mill
operations of CPF and GFPT.
- Soybean meal: December price was Bt20.5/kg, +3%MoM, from Bt19.9/kg in
November; the average for 2013 was Bt18.4/kg, +3%YoY. The price rise in 2H13
was offset by the fall in corn price.
- Fish meal: December price was Bt27.4/kg, -5%MoM; 2013 average was
Bt33.2/kg, down 2%YoY because of the slump in shrimp farming.
Quarterly broiler spread: To get a picture of the trend for the boiler industry, we
calculate the spread between broiler price and 1.8x of feed raw material costs, though
there is a lag. Thus, although broiler price rose in Dec, spread in 4Q13 fell to Bt9.95/kg,
down from peak in 2Q13 at Bt14.68/kg, falling to Bt13.20/kg in 3Q13.
Shrimp update: December price was Bt270/kg, -2%MoM, giving a 2013 average of
Bt221/kg, +58%YoY. This is a good sign that the industry is recovering.
Tuna update: December price was US$1,400/ton, nailing three consecutive quarters of
a decline, due to oversupply in Europe and the Middle East that forced suppliers to sell
tuna in Asia at a lower price. Thus, TUF got cheaper tuna and a higher gross margin –
though at the same time this may force it to book a stock loss in 4Q13.
Recommendation. Our favored pick is CPF with a TP of Bt35; CPF’s shrimp business
remains sickly, but 4Q13 will benefit from better broiler and swine spreads in December
and extra gains. TUF, BUY with TP of Bt70, is expected to show unimpressive earnings
in 4Q13 due to significant stock loss from the fall in tuna price and write-off of the pet
food business in the U.S., both one-off items. TUF’s stock price has fallen to a good
point at which to Buy. TUF also benefits most from baht depreciation.