PETALING JAYA: Production costs for chicken and egg producers are expected to be lower following weaker average three-month futures prices of key commodities for animal feed that are now trading below two-year peak levels since last Friday.
MIDF Research said the weaker prices would be a positive given that animal feed is a significant production cost component.
“Based on our channel checks, we have gathered that production costs for efficient and large poultry players are below the price ceiling for live birds, and the production costs for egg producers are at least on par or slightly above the market price of chicken eggs,” it noted.
Poultry players are expected to have the flexibility to adjust prices based on demand and supply dynamics as well as the ability to pass on increased production costs to consumers, following the removal of price controls and subsidies for chicken by the government.
The announcement was made by the Agriculture and Food Security Ministry which stated the subsidies and price controls for chickens would be discontinued effective tomorrow, while subsidies for eggs grade A, B, and C would remain.
MIDF Research deemed the step as a positive development for chicken producers such as Leong Hup International Bhd
, when combined with the normalisation of commodity prices such as corn, soybean meal, crude palm oil, and wheat.
“We believe the demand for poultry products will remain resilient since chicken products are the most affordable source of protein for Malaysians,” said the research house.
On the continuation of subsidies for eggs grade A, B and C, MIDF Research said the government would maintain price controls and would not impact or benefit egg producers under its coverage such as QL Resources Bhd.
“We find this is manageable for QL Resources since the company only sells chicken eggs in Sabah and Sarawak where the ceilings prices are much higher and varies across cities,” MIDF Research said.
The research house added the economies of scale enjoyed by QL Resources, along with the government subsidies, would continue to sustain the group’s margin.
MIDF Research noted that chicken prices in most states are below retail price ceilings except for Pahang and Selangor, while average prices for grade A, B and C eggs for September were mostly above the price ceilings.
Hence, the research house said the government’s announcement was appropriate and the market price of chicken after the removal of subsidies and price controls should not increase substantially.
“We believe it will be closely monitored by the government and is under the government’s watchlist.
“Nevertheless, the maintenance of subsidies for chicken eggs will continue to support egg producers and ensure the market price of chicken eggs remains controllable,” MIDF Research noted.
It said it made no changes to its earnings forecast and recommendations for the sector, as the removal is not expected to have an impact on the upcoming third quarter calendar year 2023 earnings results season.
MIDF Research maintained a “positive” call on the consumer sector underpinned by the resilient demand for staple-related products, strong domestic consumption outlook, better profit margins for food and beverage producers and normalised profit margins for poultry players.
