Rising pig prices push up livestock stock prices

Shares of livestock companies rose by double digits as pork prices rose sharply, hoping to improve the group's profits after a year of decline.

From a base of over VND13,000 in early March, Dabaco's DBC stock has increased by more than 40%, to around VND19,000-20,000, after less than three months. Similarly, BAF code of BAF Vietnam Agriculture Joint Stock Company has also increased by nearly 20% in the past three months and increased by more than 40% since the beginning of the year. The common point of these two businesses is that the pig farming sector accounts for a high proportion in the business structure.

In terms of growth, both stocks have also outperformed the overall market. Since the beginning of 2023, while the VN-Index has increased by nearly 7%, DBC and BAF have both increased by over 30%.

One of the factors that has helped the market pay attention to these two stocks is the recovery in pork prices. In May, pork prices increased by nearly 11% compared to the previous month, reaching the highest level since the beginning of the year.

According to VNDirect Securities Company, this development is due to the decrease in the output of pigs sold off by farmers compared to the first months of the year and the market's concerns about the lack of supply when the number of small-scale farming households by the end of the first quarter had decreased by 50% compared to 2021.

At the annual shareholders’ meetings earlier this year of a number of listed meat producers, the group’s management boards all delivered a more positive message about the outlook for pork prices. The general forecast is that the most difficult times occurred in the fourth quarter of last year and early this year, so the industry outlook will be more positive from the third quarter of 2023.

Nguyen Nhu So, Chairman of Dabaco’s Board of Directors, said that the price situation may remain difficult until the end of the second quarter. However, expectations of tourism opening and a reduction in the total herd may push the price of pork back up by the end of the year.

"Subjectively speaking, I think pork prices should go up. Not only in Vietnam but also in many neighboring countries, the total herd is decreasing," Mr. So told shareholders, adding that business results in the last two quarters of the year could improve.

Pork shop in Phuoc Long B ward, Thu Duc city, Ho Chi Minh city. Photo: Quynh Tran — Pork shop in Phuoc Long B ward, Thu Duc city, Ho Chi Minh city. Photo: *Quynh Tran*

The difficulties of the livestock industry began to become more apparent early last year, when input material prices skyrocketed while selling prices gradually decreased.

From an average of several hundred billion VND in net profit per quarter, Dabaco's profit in the first quarter of 2022 dropped to less than 10 billion VND. Difficulties increased in the last quarter of the year and the beginning of this year when pork prices continuously hit rock bottom, while input material prices fluctuated strongly.

In the first quarter, Dabaco reported a record loss of more than 320 billion VND, before that, in the fourth quarter of 2022, it also lost nearly 80 billion VND. The livestock industry giant is operating below cost price, suffering losses right from its main activities. Dabaco's revenue in the first three months of the year was recorded at 2,314 billion VND but the cost of goods sold was up to 2,384 billion VND.

Similar to Dabaco, BAF's business results in the last quarter of 2022 and the first quarter of 2023 were also low, with a net profit of only a few billion VND, compared to an average of 40-150 billion VND per previous quarter. This enterprise also suffered a net loss from its main business activities when its gross profit was not enough to cover operating and financial costs.

For small businesses, the difficulties are even greater. At the end of March, in a letter to the State Bank, the Dong Nai Livestock Association said it was exhausted and had to 'hang up cages' in large numbers because it was selling products below cost, hoping the bank would extend its loan term. This situation occurs with small-scale livestock households, with less than 20,000 poultry or a herd of less than 200 pigs.

However, analysts predict that the shrinking herd could become a driving force for pork prices to increase again, when supply is forecast to be in short supply.

"In our view, pork prices will increase by 9.7% in the second quarter and improve more clearly in the last two quarters of the year, possibly reaching VND62,000-65,000 per kg thanks to recovering consumption demand and limited supply from small-scale farmers," VNDirect's meat industry analysis report wrote.

However, according to the analysis team, the price of agricultural products and input materials can be a variable affecting year-end business results.

VNDirect expects global agricultural prices to fall by an average of 7-10% this year, leading to a possible 5% drop in animal feed prices. However, the analysis team said there is still a risk of global agricultural prices rising again due to escalating tensions between Russia and Ukraine, as well as unfavorable weather conditions in some major exporting countries.

Minh Son

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