Chicken and Egg situation; egg producers will gain from higher prices|
Friday October 26, 2012
By NG BEI SHAN
PETALING JAYA: The increase in egg prices will improve margins for egg producers as surge in stockfeed costs and a surplus in supply have been keeping them low for the past few months.
Federation of Livestock Farmers' Associations of Malaysia advisor Datuk Fong Kok Yong said the increase in egg prices would have a positive impact on the earnings of the egg producers in the near term.
It was reported that the increased culling in layer hens resulted in a 5% shortage of eggs and consequently a 2-sen increase in their prices.
“Egg prices have been trading below costs of production since the beginning of the year. Industry players could hardly maintain costs at the previous prices,” Fong, who is also Farm's Best Bhd managing director, told StarBiz.
He said competition in the segment led to a surplus of egg supply which in turn kept the prices low for many months.
Fong explained that egg was a commodity and egg producers were “price-takers” who had no say in determining the prices but noted that efficient producers should be able to “make ends meet.”
When asked if the additional culling of layer hens was a form of correction, he said: “The commodity market has its volatility but the additional culling will not have any impact in the supply of eggs in the market.”
He emphasised that there was no shortage of egg supply resulting from the increased culling. “If you walk into the sundry shop, grocery store or supermarkets, you can still get eggs,” he said.
A bank-backed analyst, who covers the consumer industry, said: “Culling was done to keep production costs low as old hens have lower productivity,
“The growing phase (of layer hens) is around 20 weeks (five months). An adult egg layer's egg-laying phase is from week 21 to 80.”
The oversupply of eggs and high prices of corn and soybean due to the draught in the United States had pressured margins for egg producers, he said, adding: “The impact on the earnings (for egg producers) depends on how long the stockfeed prices stay at high levels.”
An industry player from a listed company, who declined to be named, said: “Feed costs account for 70% to 80% of egg production costs and they went up on an average of 30% for the last few months.”
According to him, egg prices were cyclical as egg production costs were in tandem with price movements of commodities, namely soybean and corn.
Among the egg producers, the analyst said he did not see the previous lower margin impacting the earnings for QL Resources Bhd.
“Its earnings also come from marine products so it might not be the same for pure players.
“Besides that, its presence in east Malaysia is big. Tight competition is seen in the peninsula as compared with east Malaysia because of the pricing difference,” he said.
The company's profit before tax increased 15% for its first quarter ended June 30 to RM41.62mil compared with the previous corresponding period.
As QL Resources had its own feedmill, it was able to save costs, the analyst added.
According to a report in August, QL Resources managing director Chia Song Kun expected the depressed prices of eggs to improve in October.
However, the country's largest egg producer, Huat Lai Resources Bhd, made a loss before tax of RM2.7mil in the quarter ended June 30, contrary to a profit before tax of RM12mil last year.
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