Rising pig prices push up livestock stock prices

Shares of livestock companies rose by double digits as pork prices surged, raising expectations that the sector's profits would improve after a year of decline.

From a base of over 13,000 VND at the beginning of March, Dabaco's DBC stock has increased by more than 40%, reaching around 19,000-20,000 VND in less than three months. Similarly, BAF stock of BAF Vietnam Agriculture Joint Stock Company has also increased by nearly 20% in the past three months and by more than 40% since the beginning of the year. A common point between these two companies is that pig farming accounts for a high proportion of their business operations.

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

One of the factors driving market attention to these two stocks is the recovery in live pig prices. In May, live pig prices rose nearly 11% compared to the previous month, reaching their highest level since the beginning of the year.

According to VNDirect Securities Company, this development is due to a decrease in the sell-off of pigs by farmers due to disease outbreaks compared to the early months of the year, and market concerns about a shortage of supply as the number of small-scale pig farmers had decreased by 50% by the end of the first quarter compared to 2021.

At the annual general meetings of several listed meat producers earlier this year, the management of these companies all delivered more positive messages regarding the outlook for live pig prices. The general forecast was that the most difficult period had passed in the fourth quarter of last year and the beginning of this year, therefore the industry outlook would be more positive from the third quarter of 2023 onwards.

Mr. Nguyen Nhu So, Chairman of the Board of Directors of Dabaco, said that price trends may remain challenging until the end of the second quarter. However, expectations of reopening tourism and a decrease in the total pig herd could push pork prices back up towards the end of the year.

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

A pork butcher shop in Phuoc Long B ward, Thu Duc City, Ho Chi Minh City. Photo: Quynh Tran — A pork butcher shop in Phuoc Long B ward, Thu Duc City, Ho Chi Minh City. Photo: *Quynh Tran*

The difficulties facing the livestock industry began to become more apparent from the beginning of last year, when input costs skyrocketed while selling prices gradually declined.

From an average net profit of several hundred billion VND per quarter, Dabaco's profit in the first quarter of 2022 fell to below 10 billion VND. Difficulties increased in the last quarter of the year and the beginning of this year as live pig prices continuously hit rock bottom, while input material prices fluctuated sharply.

In the first quarter, Dabaco reported a record loss of over 320 billion VND, following a loss of nearly 80 billion VND in the fourth quarter of 2022. The livestock giant is operating below cost, incurring losses even in its core business. Dabaco's revenue in the first three months of the year was recorded at 2,314 billion VND, but the cost of goods sold reached 2,384 billion VND.

Similar to Dabaco, BAF's business results for the last quarter of 2022 and the first quarter of 2023 were also low, with net profit amounting to only a few billion VND, compared to an average of 40-150 billion VND per quarter previously. The company also incurred net losses from its core business operations as gross profit was insufficient to cover operating and financial expenses.

For small-scale businesses, the difficulties are even greater. At the end of March, in a letter to the State Bank of Vietnam, the Dong Nai Livestock Association stated that it was facing financial hardship, with many farms closing down due to selling products below cost, and requested the bank to extend loan repayment periods. This situation is occurring among small-scale livestock farmers, those with fewer than 20,000 poultry or fewer than 200 pigs.

However, analysts predict that the shrinking of the pig herd could become a driving force for a rebound in pork prices, as a supply shortage is anticipated.

"In our view, live pig prices will increase by 9.7% in the second quarter and improve significantly in the last two quarters of the year, potentially reaching VND 62,000-65,000 per kg thanks to recovering consumer demand and limited supply from small-scale farmers," VNDirect's meat industry analysis report stated.

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

VNDirect expects global agricultural prices to fall by an average of 7-10% this year, potentially leading to a 5% decrease in animal feed prices. However, the analysis team noted the risk of a rebound in global agricultural prices 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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