The ban on the exports of chicken from June 1 and the withdrawal of subsidies for poultry breeders on July 1 is not only likely to exacerbate the poultry breeder’s woes but also add to the food security conundrum, analysts have chimed into say.
They said that the move is likely to see many poultry breeders exiting the industry as the elevated price of the feedstock cost such as corn and soya has already impacted the margins, the latest move by the government to ban the export of chicken is the last straw in the camel’s back.
An analyst is a stockbroking firm said that the right thing for the government to do was to allow the market forces to dictate the price, but the government could subsidise the buyers through cash-hand outs. “In this way, breeders could continue their operations and at the same time consumers could buy chicken at a reasonable price,” he said.
He said that this was paramount considering the withdrawal of subsidy for the breeders and the ceiling price in chicken would not make it tenable for breeders who might be forced to cease their operations or relocate their operations. “This would certainly add to the food security issue,” he said.
Loss making chicken producer LKTM Bhd proposed a reverse take-over exercise where the existing poultry business would be divested to its major shareholders and the listed entity would be controlled by an electronic service or EMS player.
LTKM operates an automated layer farm in Melaka with over two million chickens on multi-deck housing systems that produce over one million eggs per day.
The chairman then said in a statement, LTKM executive chairman Datuk Tan Kok said the proposed disposal comes amid the challenging operating landscape for the poultry industry brought on by overcapacity, low average selling prices of eggs, high raw material prices, difficulty in controlling disease outbreaks in farms and an acute labour shortage
Leong Hup International Bhd’s (LHI) 1Q22 net profit plunged -71.0% YoY to RM20.4m. The results came in below expectations, amounting to 14.5% of our previous full-year forecast at RM140.7m and 12.3% of consensus forecast at RM166.1m. Key deviation was due to margin compression arising from the elevated feed costs mainly driven by the Russia-Ukraine conflicts.
Another listed entity Teo Seng involved in poultry farming and the marketing of chicken eggs, the manufacturing and marketing of animal feed, egg trays, organic fermented fertiliser, and distribution of pet food and medicine, and animal health products.
For its financial year ended Dec 31, 2021, the group’s net profit dropped 28.4% year-on-year to RM3mil, although revenue was 10.8% higher at RM530.1mil.
Teo Seng says despite the higher revenue due to the improved selling price of eggs, its bottom line was impacted by the continued high prices of raw materials such as maize and soyabean.
Analysts have all chimed in to say that the costs of the inputs does not make the industry tenable. Cost wise, soybean and maize prices saw spike in 1Q22, rising 24.3% and 12.9% respectively QoQ.
With key drivers include the inflation-driven farming costs, tightened global supply due to a drought in Brazil that delayed harvesting, and unresolved Russia-Ukraine tension.
The commodity prices may continue to stay elevated due to prolong Russia-Ukraine conflicts, which is likely to continue through the following quarters.
The Head Of Research in a bank-based broking house said that ban on the export would impact breeders as they will suffer losses due to low-profit margins which are insufficient to cover the high production costs. “There is a possibility that this may lead to many supplies ceasing operations and ultimately damage the poultry industry as a whole,” he said
