Impact of fertilizer crisis seen reflected in food prices by Q3
From AB Capital's The Opening Bell: Three Moves
Event
Reports indicate the ongoing fertilizer disruption linked to the Strait of Hormuz is expected to feed into higher food prices by Q3, reflecting tightening global agri supply and elevated input costs.
View
We see this as a shift from an oil-driven narrative to a full input cost to food inflation story. The key risk is duration. If oil remains above US$100 for one to two months, food inflation becomes entrenched into Q3, compressing margins and weakening real consumption. This raises downside risk to consumer earnings, particularly for URC and CNPF, while JFC remains relatively better positioned and PGOLD retains its defensive profile but faces downtrading risk.
Catalyst
The transmission mechanism is already in motion. Fertilizer costs have risen due to shipping delays and higher insurance, and ground intelligence shows price hike notices have been sent to retailers. This suggests the cost absorption phase is ending, with shelf price increases likely beginning May to June and fully reflected in CPI by Q3. Second-round effects are building, with food and utilities now leading inflation, pointing to a broader and more persistent cycle.
Action
Stay selective within consumer. Maintain preference for defensives and names with pricing power or pass-through ability such as PGOLD and JFC. Be cautious on margin-sensitive staples like URC and CNPF where earnings risk is skewed to the downside. At the index level, this reinforces the risk of EPS downgrades if cost pressures persist into June, while also complicating the BSP’s easing path in the near term.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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