Poultry
New reference prices to support the industry, albeit unlikely to be a game changer
- The NFA issued a new regulation to increase the reference prices of livebirds and local corn, effective from Jun24 until amendment.
- Although we view this positively, we only expect a minimum impact from reference prices on actual market prices.
- We maintain our Overweight rating on the sector, foreseeing higher feed margins; CPIN remains our top pick.
New reference prices for livebirds and local corn
The National Food Agency (NFA) issued a new regulation regarding the continuation of reference price relaxation. The letter sets livebird reference prices at Rp23,000-25,000/kg (from Rp21,000-23,000 set in 2022) and corn at Rp5,800k/kg (from Rp5,000/kg). In addition, the regulation also sets reference prices of eggs at Rp24,000-26,500/kg (from Rp22,000-24,000 previously), producer level corn prices (KA 15-30%) at Rp4,200-5,000/kg (from Rp3,540-4,200), consumer level egg prices at Rp28,000-30,000/kg (from Rp27,000) and consumer level broiler prices at Rp38,000-40,000/kg (from Rp36,750). The reference prices will be valid until there is an amendment to NFA regulation (No 05/2022).
Potential benefit for the industry if it can be achieved
Based on recent industry data, the new reference prices will potentially benefit the commercial farming business as the reference prices of Rp21,000-23,000/kg are above the current livebird prices of Rp18,000/kg. The feedmill business will potentially be negatively affected as the current corn prices are at Rp4,700/kg, below the reference price of Rp5,800/kg. In our view, the reference prices, if they materialize, will be positive for the poultry sector. However, we believe that the reference prices policy alone will not have a meaningful impact.
Industry data remains favorable despite the weakness in LB prices
Livebird prices have decreased to Rp18,000/kg in late May24, the lowest level during the month. The average price in May24 was still high at Rp21,000/kg, albeit slightly lower than Apr24’s average of Rp21,500/kg. While we expect LB prices to remain on the weaker side in Jun24, we believe the feed business can offset the lower margin of commercial farming. The local corn price is continuing its downtrend YTD trend and has reached Rp4.7k/kg in May24, 8% lower than April`s Rp5.2k/kg (-16% yoy). Meanwhile, despite breaking its YTD high price in May24, the average SBM price remained low at US$370/t (+9% mom, -11% yoy), comparable to early this year (Jan24 at US$365/t).
Maintain Overweight with CPIN as our top pick
As we had anticipated the lower LB prices in Jun24 and potential sequential weakness in 3Q24, we maintain our Overweight call on the poultry sector with feed margin improvement as a key catalyst and high LB prices as upside risks. Risks to our view are volatility in earnings (particularly in 3Q24), elevated feed costs, and weaker purchasing power.
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