Agri-Food

Agri-Food
March: broiler price down, swine up. Domestic broiler price slid 10% in March to Bt40/kg from Bt44/kg in February, below our 2014 assumption of Bt42/kg, pulled down by the rise in supply brought by the reopening of Japan, as we warned earlier. Domestic swine price continued to rise, up 3% to Bt76/kg from Bt74/kg in February, staying above our 2014F average of Bt68/kg. The livestock industry is expected to be little affected by the political unrest and domestic consumption slowdown in 1H14. The hot season will reduce broiler and swine supply from small operators, but broiler production for export will start rising in 2Q14, which should lead to better earnings for broiler export companies in 2Q14 and 3Q14. We note that although domestic broiler prices fell, prices in Vietnam and Turkey are rising, good news for global player CPF.
Worrisome rise in feed ingredient costs: corn price rose 40%, soybean meal 30% and fish meal 30% in March on concerns of drought in the Americas. The spread between chicken meat prices and feed raw material costs halved to Bt8/kg in March from ~Bt16/kg in January to February, but spread in 1Q14 was still a good Bt13/kg.
- Corn price rose to Bt8.7/kg in March from Bt8.5/kg in February, but remains below Bt10/kg. We note a short-term concern about problems in Ukraine, the world’s third largest exporter. Absence of its corn on the market will cut supply and raise prices. This would be more detrimental to CPF and GFPT than to TUF.
- Soybean meal: March price was up 3% to Bt21.0/kg from Bt20.3/kg in February, trending up because of the drought in Latin America. This will hurt 3Q14 margins for those who use it as an animal feed ingredient.  
- Fish meal: Price in March increased to Bt32.4/kg from Bt27.4/kg, +18% MoM. The climb in price is a sign that the shrimp business in the region brought more supply to the market and that the effect of EMS is being eased.
Shrimp. March price was Bt270/kg, stable for the fourth month; prices in Vietnam and Malaysia fell, indicating better shrimp availability in the region. CPF and TUF believe the greater supply of baby shrimp in early 2014 points to recovery - expected in 2Q14.
Tuna. Price in March fell to US$1,175/ton from US$1,225/ton in February, the lowest in three years, not good news for TUF’s OEM, which provides 45% of its revenue. At the same time, TUF will be able to widen margin from branded tuna, which accounts for 55% of its revenues and 70% of its gross margin. TUF now has a greater proportion of branded products, where price and margin are higher and more stable than in the volatile OEM market. However, we hope to see tuna price hit bottom in the next few months, giving TUF a good opportunity to build margin on branded products and gain a larger volume for its OEM products as well.
Like TUF (Buy, TP Bt80) which does not face risk from rise in feed ingredient prices and is set to do well, with a gradual recovery in shrimp