Food - Growth continuing good in 2H24F
Growth continuing good in 2H24F
In 3Q24TD, overseas swine prices in Vietnam and China are closing to a 2-year high, with solid 2H24 prices backed by supply shortage from the widespread return of ASF. Locally, livestock prices are also closing to the year’s high in 3Q24TD, with 2H24 prices robust on better swine supply together with solid broiler exports, though prices might soften gradually in the near term from seasonally heavy rains, flooding and the vegetarian festival (Oct 3-11). Feed costs and skipjack tuna price are staying low in 2H24. Sector earnings will be the year’s best in 3Q24F (up YoY & QoQ) amid continued growth YoY in 4Q24F from a wider margin, with upside from the interest rate cut but downside from a strong THB and wage hike. Our pick is CPF.
Robust overseas swine prices in 2H24F. In 3Q24TD, swine prices in China and Vietnam are closing in on a 2-year high at CNY20/kg (+23% YoY, +19% QoQ) and VND61,200/kg (+6% YoY, -3% QoQ), above breakeven at the gross profit level for big players at CNY15-16/kg and VND44,000-45,000/kg. We expect overseas swine prices to continue to stay high in 2H24F, up HoH and YoY, backed by supply shortage from the return of a new round of ASF in China in mid-2024 and Vietnam in 3Q24, and returning from loss levels over the past few years in China.
Local livestock prices to stay high in 2H24F. In 3Q24TD, local swine and broiler prices are closing to the year’s high at Bt71/kg (+4%YoY, +2% QoQ) and Bt44/kg (+8% YoY, flat QoQ) vs breakeven at the gross profit level for big players at Bt60-68/kg and Bt38-39/kg and we expect to end 2H24F with livestock prices up HoH and YoY on less smuggled pork and lower pig supply from several government measures, amid solid broiler export demand. However, seasonally, livestock prices are likely to see a short-term drop in late 3Q24 to early 4Q24 on weaker demand from the heavy rains and floods plus the vegetarian festival (Oct 3-11), where prices generally fall or are stable weeks ahead and/or during the festival.
Feed costs to stay low in 2H24F. In 3Q24TD, we believe spot blended feed costs are relatively unchanged YoY, with spot corn price rising to Bt12.4/kg (+6% YoY, +13% QoQ) on tighter local supply (off-harvest, with the next harvest starting in September), but a fall in imported soybean meal and wheat bran prices to Bt20.6/kg (-3% YoY, -3% QoQ) and Bt9/kg (-17% YoY, +2% QoQ). With more favorable weather for corn, soybean meal and wheat globally in the 2024/25 crop years based on the USDA forecast, we expect feed costs to stay low in 2H24F.
Spot skipjack tuna price to stay low in 2H24F. In August, spot skipjack tuna price fell to a 3-year low of US$1,250/ton (-31% YoY, -21%MoM) from good catches despite the FAD ban in the Western Pacific Ocean. TU expects prices to stay low for the next 1-2 months, then return to the usual US$1,400-1,600/ton in late 2024F. Normally, TU keeps tuna inventory at five months on average, while its price contracts on branded & OEM products (40:60) are 3-12 months and 2-3 months. The low tuna price will be positive to its branded business given the longer contract term. It has not yet seen any adverse impact on OEM orders from the rapid change in price in 3Q24TD. The
easing container freight rate from 2Q24’s high will shore up 2H24F export sales volume further.
Top pick. CPF is our pick, poised to report the best growth in 3Q24F, led by solid overseas and local livestock prices, with the sector’s largest upside from an interest rate cut, less downside from a wage hike than peers and unaffected by a strong THB.
Key risks: Weak prices from fragile purchasing power and more supply, high feed costs, strong THB. Key ESG risks are GHG emission, waste & water management (E), customer welfare, product quality management, health & safety policies (S)