As a result of the war in Ukraine, shipments are being barred from exporting the country’s staple produce, such as wheat, which has prompted global food prices to skyrocket.
The war has triggered a huge upsurge in wheat prices, with Russia and Ukraine among the biggest producers of the commodity.
India has announced fresh food protectionism, capping sugar exports at 10 million tons for the marketing year that runs through September. The limitation of sugar came not long after its government made a decision to block wheat exports citing food security concerns following a record heat wave slashed production and drove up prices.
Indonesia also placed a restriction on exporting palm oil, while Malaysia attempted to curb poultry exports.
However, Asia Plus Securities (ASPS) believes that inflation will benefit some stocks, particularly those related to soft commodities:
1) Live chicken price makes a six-year high of THB43/kg at present, rising 2.4% qoq. Malaysia will suspend the export of 3.6 million chickens (9 million tons) per month beginning on June 1 in order to combat domestic food shortage and manage surging chicken prices. This gives Thailand the chance to expand its export markets for chicken (e.g., Singapore), with a positive outlook on Thai chicken producers such as GFPT (TP: THB17.00), TFG (TP: THB6.00), and CPF (TP: THB32.00).
2) Farm-gate pork price makes a record high of THB113/kg at present, rising 8.7% wow as a result of pork shortage problem, having benefiting Thai pork players, e.g. TFG (TP: THB6.00) and CPF (TP: THB32.00).
3) Global soybean meal price is US$423.3/ton now, flat from last week but falling 10% in two months (after rising high in early-2022). Livestock plays will benefit from lower feed mill raw material cost, e.g. GFPT (TP: THB17.00), TFG (TP: THB6.00), and CPF (TP: THB32.00).
4) Raw palm oil price is MYR6,930/ton, rising 4.4% wow as drought weakens palm supply. Indonesia (world’s largest palm oil producer, 60% of worldwide palm oil production) announced a ban on palm oil exports on April 28 but then lifted the ban on May 23. Palm oil price is continuously rising, having positive sentiment on raw oil palm producers (UVAN, UPOIC, VPO) and integrated palm oil producers (CPI, LST).
5) Raw sugar is 19.68 cents/lb, up 5.7% in two weeks. Global sugar demand-supply should balance by 2021/22. India, the world’s second-largest sugar producer, will limit sugar exports to 10 million tons till October 2022. India’s sugar exports rarely surpass 10 million tons/year, thus this won’t affect global pricing. Investors should watch whether other countries, like Brazil (the world’s largest sugar producer and exporter), will limit sugar exports. Higher selling price and production volume should boost 2022 sugar producer profits. Recommend buying KSL (TP: THB4.50) and speculating on KTIS, KBS, and BRR.
6) Rubber block price is US$1,620/ton now, rising 3.8% in two weeks due to concern over a decline in rubber supply caused by leaf fall disease in Indonesia. Meanwhile, China lowered car import duty to boost car sales, boosting demand for rubber for tire production. Recommend BUY for NER (TP: THB10.20) and STA (TP: THB28.00).
