KUALA LUMPUR (June 9): MIDF Research maintained its positive view on the consumer sector, following the removal of chicken and egg price caps from July 1, as poultry players would have greater price flexibility in response to changes in input costs.

The change would allow market forces to determine prices based on supply and demand conditions, it said in a research note on Friday (June 9).

The research house said the positive view was underpinned by a defensive play, due to resilient demand for staple-related products and solid domestic consumption, supported by a stable labour market, robust retail trade, and increased tourism activities.

“Apart from that, solid profit margins for food and beverage producers - driven by falling raw material prices and previous price hikes, offsetting other cost pressures - and normalised commodity prices for livestock feed are likely to alleviate elevated input costs for poultry players,” it added.

Meanwhile, the recent decline in futures contract prices for global soybean meal (-1.8% year-on-year) and corn (-29.4% y-o-y) in May 2023 could ease the poultry industry’s cost pressure, and may help offset increased labour and electricity costs.

“Therefore, we believe that the removal of price controls after July 2023 will allow poultry farmers to have more price flexibility to pass on higher input costs to consumers, and improve their profit margins,” it said.

Additionally, the lifting of export restrictions on live chicken, dressed chicken and chicken parts may encourage poultry players to increase chicken production in Malaysia, and explore export opportunities, diversifying their revenue streams.

“However, given the tight egg supply in Malaysia, we anticipate a potential increase in egg prices in the near term.

“Moreover, the global avian flu outbreak has led to reduced egg supplies in other countries, potentially making imported eggs more expensive in Malaysia,” the research house said.

In April 2023, the average prices were RM10.45 per kg for chicken, 47 sen per egg for Grade A, followed by 45 sen/egg (Grade B), and 44 sen/egg (Grade C).

“As such, we believe that floating prices of chicken should not experience substantial increases after the removal of price controls, but prices of eggs may rise, due to limited supply both domestically and internationally,” it said.

https://www.theedgemarkets.com/node/670530