Which stocks to choose when food prices rise continuously?

2 min read

VNDirect Research has just released the Agricultural Industry Report: Rising global food prices impact producers. According to VNDirect, rice and sugar producers will expand gross margins in the next period. In particular, businesses in the sugar industry also benefit from the new decision on anti-dumping tax.

Global food prices rose for the 10th consecutive month

According to the International Food Organization (FAO), the global food price index rose 2.1% in March 2021 and was at its highest level since June 2014. Disruptions in supply, low rates of agricultural inventories and a weak US dollar are all possible reasons for the recent rise in food prices.

This price trend is expected to continue to increase as the 2021 crop outlook is affected by adverse weather and a faster-than-expected recovery in China drives up demand for food.

Source: FAO, VND.

Companies that export rice, produce sugar and fertilizers will benefit

In the general global trend, the prices of rice and sugar in Vietnam have increased by 18.6% and 31.8%, respectively, compared with the beginning of the year according to world food prices. VNDirect expects rice and sugar producers to expand gross margins in the next period.

In particular, businesses in the sugar industry also benefit from the new decision on anti-dumping tax. Fertilizer companies also benefit indirectly from rising demand as farmers increase production to take advantage of the trend of rising food prices.

Companies that produce milk, feed, cooking oil and meat may be affected

Meanwhile, most businesses in Vietnam have to import powdered milk, grain and oil to produce milk, animal feed and cooking oil. Therefore, VNDirect believes that these manufacturers will face challenges of higher input material costs.

Rising feed prices have a negative impact on meat production while live hog prices are forecast to decline 19% year-on-year in 2021, compared with highs during the period of African swine fever.

Businesses will be affected

With the current food price volatility trend, VNDirect chooses shares of Loc Troi Group (Ticker: LTG) and Quang Ngai Sugar (Ticker: QNS) because these companies are self-sufficient in input materials and benefit from a higher selling price.

VNDirect believes that Loc Troi is in a position to take advantage of the rising price trend as the company’s sales volume is guaranteed by fixed annual contracts in February, June and September.

Although the higher soybean price is a bit negative for Quang Ngai Sugar, the company can benefit from the new decision on anti-dumping tax on Thai imported sugar and rising sugar prices.

Source: vietnambiz.vn – Translated by fintel.vn