November 25, 2024

 

Malaysian poultry sector set to benefit from falling feed costs

Malaysia's poultry industry is expected to experience improved profit margins, driven by declining feed expenses and input costs, which could offset pressures from the ringgit's depreciation, according to a report by MIDF Amanah Investment Bank.

 

Feed costs, which typically constitute 65%-75% of production expenses, are a key factor influencing the profitability of the sector. MIDF noted that this reduction is likely to boost margins for leading companies such as QL Resources Bhd and Leong Hup International Bhd.

 

"We remain optimistic that prices for these commodities will stay low in 2025, thanks to ample supply from leading exporters," the bank said. The favourable pricing trend, coupled with government support, is expected to create a positive outlook for the industry.

 

Key feed ingredients like corn and soybean meal have seen a steady decline in prices since early 2024. Soybean prices, which contribute 19%-32% of feed costs, have dropped by 18% year-on-year to an average of US$350 per tonne in October. This decline is attributed to increased supply from major producers in Argentina, the US, and China.

 

Similarly, corn prices, which account for 55%-69% of feed formulations, decreased by 14% on average, falling to US$17,319 per tonne last month. The drop is due to increased output from key regions, including the United States, China, the European Union, and Ukraine.

 

However, the volatility of the ringgit against the US dollar remains a concern for poultry companies, which procure feed commodities in the US currency. The ringgit averaged 4.30 against the US dollar in October, compared to 4.26 in September.

 

"While the depreciation heightens cost pressures, we anticipate this impact will be mitigated by recent global commodity price normalisation, which has helped stabilise input costs," MIDF stated.

 

Looking ahead, the research house expects the ringgit to strengthen, potentially ending the year at around 4.03 against the US dollar. This improvement is expected to further reduce input costs for poultry producers.

 

Shares of Malaysian agro business QL Resources remained unchanged at MYR 4.79 (US$1.07), giving the company a market valuation of MYR 17.5 billion (US$3.9 billion). Leong Hup International's shares dipped slightly to MYR 0.67 (US$0.15), with a market capitalisation of MYR 2.45 billion (US$549 million).

 

-      The Edge Malaysia