The Effect of Corn Import on Net Profit Margin and Stock Price Animal Feed Industry Company
Government policy in banning corn imports in 2015 with the aim of protecting corn prices at the farmer level has an effect on Production Costs and net profit margin Feed Industry Company. Excess Demand of Corn cause the Corn Price increase to IDR 5.400 per kg to IDR 6.000 /kg although corn Price Ceiling determined by Government is IDR 4.000 per kg. This condition has direct effect to the cost of goods sold for animal feed industry and directly reduces the net profit margin of the Company.
The Requirement of corn in animal feed ranges from 45-50% of feed ingredients that’s way this commodity is very important and the price has a big impact to final output in this industry that are chicken meat and egg.
Feed Industry Strive to meet production targets and reduce production costs. The Company try to substitute corn in the feed of around 20-50% with wheat, although it does not have a significant effect on decreasing the cost of production because the high demand for wheat causes the price of this commodity to increase. The Fluctuation price of meat and egg causes Feed Industry Company choose to reduce production costs rather than raising feed prices, because this Policy causing the price of chicken and eggs to increase, even though the two types of commodities are very important for the people that’s why it can be one of the national issue.
One of the Market leaders in this Industry PT Charoen Pokphand Indonesia, Tbk reported on income statement on year 2016-2017 Period show the increase in production costs was quite high at 27% in 2016 and 36% in 2017 while the net margin declined respectively 5.81% in 2016 and 5.06% in 2017. The Company cut other costs in term to be able to survive in an industry that the core of its business.
In term to overcome these problems In November 2018 the government decided to import corn through the National Logistics Agency to fulfil the demand of corn at the farmer level and increase the price ceiling of chicken meat and egg prices to IDR 22,000 / kg in February 2019 to recover the loss of the farmers due the increase in corn prices.
Shares of compact animal feed producers rose because of the government’s plan to import corn.The share price of PT Charoen Pokphand Indonesia Tbk (CPIN) rose 1.36% to IDR 5,600 per share. CPIN has been transacted as many as 701 times with a volume of 1.15 million shares. The total transaction is IDR 6.44 billion.The share price of PT Japfa Comfeed Indonesia Tbk (JPFA) is 2.90% to IDR 2,130 per share. JPFA has been traded for 1,160 times with a volume of 3.91 million shares. The total transaction is IDR 8.32 billion.The share price of PT Malindo Feedmail Tbk (MAIN) rose 2.55% to IDR 1,405 per share. MAIN has transacted 1,473 times. The total transaction is IDR 11.12 billion.
In January 2019 the Government has issued a special import permit for corn allocated to fulfil the demand of the feed industry.
This year’s national corn demand is estimated at around 16 million tons, of which 50% or around 8 million tons to fulfil the demand for the animal feed industry.
If the supply of corn is fulfilled, the price of corn will be stabil so will be able to reduce the cost of production of animal feed, and finally has a good effect to the price of chicken meat and eggs. it will be affordable. Corn is a key commodity of the animal feed industry and has an important role in producing affordable animal protein for the people of Indonesia.
Refferences :
- https://stockbit.com/#/symbol/CPIN/financials
- https://www.cnbcindonesia.com/market/20181105103502-17-40542/ri-impor-jagung-harga-saham-main-cpin-jpfa-terbang
- https://analisis.kontan.co.id/news/mempermainkan-komoditas-jagung
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Great!, Good to hear the positive impact from government policy for importing corn as main commodity supply in animal feed industry
hopefully the government can use local farmers to increase production with lower costs,, thanks for sharing pak
It’s interesting article, so government should make sure the supply of corn is adequate. Thank you for sharing.
Nice article, Pak. Hope we can get more insight about feeding industry in Indonesia 😀
Thank You Mr Aldo. Our concern in producing healthy animal protein and make our people smart like You is very crucial. Feeding The Grow World.
Nice article Pak Yuna, now i already know why the egg and chicken meat price was increased.
Is this right time for applying GMO (Genetically modified) for corn?
Exactly right Miss Gracy. We hope Market Equilibrium for Corn Stabil and Very profitable for All Stakeholder in this industry. so we can produce the chicken meat and egg very affordable for everyone.
Yes Mrs Ndeal, You Are Right. It is Very Important to get there. our local farmer can fulfil the demand of corn both quality and quantity for the industry. prosperity local farmer can be top priority in our concern.
Thank you For The Support Mr Alfi. Will you buy stock for this industry. I think its good decision to invest.
Good idea. it will be one of the opportunity on this industry. it should be on Process mr Padlih.
I couldn’t agree more if the supply of corn is fulfilled, the price of corn will stable. Thus the cost of production of animal feed will decrease. Nice thought pak yuna. Thanks for sharing
You Are Welcome Dhaifin, Thanks for reading my article