November 28, 2024

 

Lower feed costs and stronger currency boost Malaysia's poultry sector

Malaysia's poultry industry continues to play a crucial role in the country's economy, showing resilience and growth despite global challenges.

 

Analysts are optimistic about the sector's prospects, pointing to declining feed costs and a strengthening ringgit as positive factors for local poultry producers.

 

Feed, which consists primarily of imported corn and soybean meal, accounts for 60% to 70% of production costs. These ingredients are purchased in US dollars, making their costs sensitive to currency fluctuations. Tan Cheng Wen, vice president of Tradeview Capital Sdn Bhd, noted that the recent decline in feed prices is expected to improve profit margins for Malaysian poultry companies.

 

However, Tan highlighted industry concerns over the removal of subsidies and competition from imported frozen chickens, particularly from Thailand. These factors have exerted downward pressure on local poultry prices, intensifying competition among producers, especially in West Malaysia.

 

An industry insider observed that lower feed costs are likely to encourage heightened competition among listed poultry companies. Producers may seek to differentiate themselves through pricing strategies, enhanced product quality, or expanded production capabilities to capitalise on favourable market conditions.

 

The insider emphasised that integrated poultry producers—companies that control their supply chains—stand to benefit most from the improved margins. These businesses can leverage the lower costs to enhance their financial performance, with falling feed prices providing a direct boost to profitability.

 

Despite these positive developments, the weakening ringgit introduces potential risks. In October, the ringgit averaged 4.30 against the US dollar, slightly weaker than 4.26 in September. A weaker ringgit raises the cost of imported feed, which could offset some of the savings from lower feed prices.

 

Among the major players in Malaysia's poultry sector are Leong Hup International Bhd, QL Resources Bhd, Lay Hong Bhd, CAB Cakaran Corporation Bhd, and Teo Seng Capital Bhd. Research by MIDF Amanah Investment Bank suggests that these companies are well-positioned to benefit from declining feed costs, particularly QL Resources and Leong Hup, which have strong government support.

 

Commodity prices for key feed ingredients have been decreasing since early 2024. Soybean prices dropped by 18% year-on-year in October to US$350 per tonne, driven by increased supply from Argentina, the US, and China. Corn prices fell by 14%, averaging US$17,319 per tonne, due to higher production in major regions such as the US, China, the EU, and Ukraine.

 

Soybean accounts for 19% to 32% of feed costs, while corn represents 55% to 69%. Analysts believe that global commodity price stabilisation will help mitigate the impact of the ringgit's depreciation on input costs.

 

MIDF expects the ringgit to strengthen to approximately 4.03 against the US dollar by the end of the year, further reducing costs for poultry producers. This improvement, coupled with declining feed prices, is likely to support continued growth and stability in Malaysia's poultry industry.

 

-      New Straits Times