Agri-Food

Agri-Food

May: broiler prices up, swine prices stay high. Domestic broiler price grew 8% MoM in May to Bt42/kg after dropping to Bt39/kg in April, back up to our 2014 assumption, which we leave unchanged. Domestic swine price was stable at Bt80/kg from last month, above our 2014F average of Bt68/kg. The rise in domestic broiler prices plus the export season (2Q-3Q) adds positives to global players CPF and GFPT. 
Feed ingredient costs down. The MoM price of corn (which makes up 50% of broiler feed) inched up only 0.5% to Bt9.25/kg but the price of soybean meal fell 1% to Bt21.2/kg and fish meal price (chief ingredient in shrimp feed) fell 17% in May to Bt29.7/kg after a steady rise from February. This is a very good sign that shrimp can make its way back to recovery. The spread between chicken meat prices and feed raw material costs surged to Bt7.9/kg in May from ~Bt4.9/kg in April but was still below ~Bt16/kg in February.
Shrimp price down, a good sign. May price was Bt240/kg, -11%MoM, the second month of a decline after four long months of high prices of Bt270/kg. Shrimp prices in Vietnam and Malaysia felt by 7% and 11% YTD respectively, indicating better shrimp availability in the region. We believe local shrimp supply will continue increasing, confirmed by a drop in shrimp prices. The lower prices will encourage shrimp packers to increase production. Thai shrimp production in 2014 is expected to come back to almost 300,000 tons per annum, after last year’s low of 250,000 tons. Though the shrimp business is poised for recovery, there will be a two-month delay in supply because unusually cool weather in January and February delayed the shrimp crop from the beginning of 2Q14 to late in 2Q14 (90 days per crop).
Tuna. As expected, tuna prices continued to rebound in May, rising 21% MoM to US$1,485/ton from the March bottom of US$1,175/ton. This is good news for TUF and we expect its tuna business to do well in 2Q14 and 3Q14. The lower prices give it the chance to improve margin for its branded tuna and gain a larger volume of OEM tuna. We note that though tuna price rose 21% MoM, it has fallen 22%QoQ and 44% YoY, giving TUF the chance to fill its inventory with lower-cost tuna.
Favor TUF (Buy, TP Bt80) and CPF (Buy, TP Bt35); GFPT worth trading (Neutral, TP Bt14.50). This year’s environment is very promising for the 2Q and 3Q high export season for both broiler and shrimp, with lower food raw material costs, weaker baht, and some relief of EMS. We thus should see a good turnaround and strong earnings growth for TUF of 96% YoY with a big turn up from a core loss for CPF. We note that GFPT earnings jumped last year and returned to normal growth of 9.2% YoY, making it worthy of a trading buy until it reaches target price of Bt14.50.