SHARES TAKE WING
Poultry producers rally as maize costs fall and high import duties kick in
POULTRY stocks are riding the crest of a wave as the maize price continues to drop and as the market waits for the anti-dumping duties imposed on EU chicken imports to formally kick in, according to analysts.
In general, chicken producers had rallied 16 percent this month, with Astral Foods the best performer, analysts said yesterday.
The gains have come on the back of a 31 percent decline in yellow maize prices this year, which has reduced input costs for poultry producers.
Analysts agreed that producers were turning the corner after three years of flat profits and sharp increases in input costs.
Jean Pierre Verster at 36One Asset Management said the fortunes of the industry had turned for two reasons: “the sharp decline of the maize price and the imposition of preliminary anti-dumping duties on poultry imports from the EU”.
Verster said South Africa was expecting a bumper maize crop and harvests had been good overseas as well. “Maize is the primary input in poultry production and makes up about two-thirds of the total chicken feed.”
The collapse in the input cost of maize would be good for the industry, especially if producers could hold on to their selling prices, he explained.
In addition, Verster said, the local poultry industry had made headway on the issue of cheap imports. It had been able to get higher import duties imposed on chicken imports from Brazil.
In September last year, the government increased tariffs to 82 percent, from 27 percent, on imports of whole birds, mostly from Brazil. The EU was excluded from the duties as it has a freetrade agreement with the country.
“Further assisting the share prices of the poultry stocks have been the preliminary anti-dumping duties imposed on imports” from three European countries, Verster said.
Early this month, the International Trade Administration Commission of SA (Itac) imposed provisional anti-dumping duties ranging from 22 percent to 73 percent on imports of frozen bone-in portions from Germany, the Netherlands and the UK.
These will be in place while Itac concludes its investigation into the dumping of chickens on the South African market, which could take up to 12 months. The duties will expire in January.
In general, the new duties would result in consumers paying a little more for their chicken.
However, Verster said that was offset by the job losses in the sector, which had resulted from the squeeze put on the profitability of producers due to pressure on the selling prices of poultry.
Poultry producers have had a hard few years since 2012, with some retrenching workers and others closing down.
“This shows the immense pressure on the local poultry sector due to selling prices not compensating local producers for input cost increases,” Verster said.
Anthony Clark, an analyst at Vunani Securities, said Astral’s share price had increased by about 40 percent in the past few months, primarily because the industry was expecting the government to make a ruling on the very hefty volumes of chicken imports coming from Europe.
“There is a very strong chance that the Minister of Trade and Industry, Rob Davies, will impose a quite substantial tariff on the importation of any poultry products from Europe,” he said.
Clark said that in that case the industry would have some protection but he could not say the same for the consumer. “It would protect the local industry but prices will rise for the local consumer.”
He added that the decline in maize prices had also helped the industry lower its input costs.
This, however, did not mean that all the risks had disappeared for the industry.
Verster pointed out that the sector was still waiting to see how the capping of brine levels would affect operations.
“Producers will still need to comply with the proposed brining cap and this could impact profitability going forward,” he said.
Astral Foods is up 81 percent to R145.04 yesterday from a low of R79.85 on February 24, while RCL Foods has risen 22 percent from R13.29 on February 27 to R16.26.