Maize prices
The poultry industry anticipates that 10-20 percent of maize could be used for ethanol production, which would increase the demand-supply gap further, causing a spike in maize prices.
Since the government has fixed a cap of 1.7 million tonnes of sugar for ethanol production anticipating a lower sugarcane output, it is hoping to largely fill the gap by allowing more quantities of maize to be used for producing ethanol, in order to achieve its target of 15 percent ethanol blending with petrol this year.
Neeraj Kumar Srivastava, former Chairman of the Compound Livestock Feed Manufacturers Association (CLFMA):
Already it is a hand-to-mouth situation in the case of maize. Further fall in supply could take maize prices from the current level of Rs 25 per kg to Rs 30 per kg, unless more is imported
What does this mean for SKM?
Maize is the primary feed ingredient for SKM. Quoting their website:
The birds are fed a highly nutritious, balanced diet composed primarily of maize, grains with vitamins and minerals added.
But unlike several smaller poultry players, SKM is also backward integrated and they have their own feed mill established for manufacturing poultry feed. Hence, while poultry feed price has increased from Rs 35 to 42 per kg, SKM probably has not felt as big of a pinch as of yet due to a rise in exports and the fact that they make their feed in house. Companies like Ovobel are probably facing a lot more pressure on their margins due to the increase in maize prices, with their OPM% dropping to below 0% and reporting a loss making quarter:
Compare that to SKM’s costs, the increase is not as drastic, and that is the advantage of backward integration:
There may be a little more pressure on margins in the coming quarters if the maize prices do end up rising further, but in my opinion the company is better placed to survive over its competitors. Thoughts?
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