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watch for breakout

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Frequent Contributor
Drought in SA has pushed up maize prices, the main cause of downward drift in ARL price since Jan imo. It is possible that this bad news has now been digested. Positives are the good results expected next month, and now the outbreak of avian flu in the US, trimming the quantity of chicken available for export. ARL if it breaks out of triangle pattern at R182 sets up target at R220. Am watching for possible re-entry
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Super Contributor
Do you see a hanging man candle. May indicate some short term downside. RSI may go down with it and then perhaps the breakout from the descending triangle? I notice lots of hanging men on its daily.
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Frequent Contributor
Yes, the price action this afternoon certainly adds weight to your observation, Penny. Thank you.
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Super Contributor
I follow ARL closely as most of my companies are in industries aligned to theirs. I both punted and bought ARL last in May last year (CFDs & long term) when all indications were that with a bumper maize crop we could stock up with maize at R1700 to R1800/ton for the next 12 months having traded as high as R3500 a few months earlier. Although this doesn't make me an expert in their business I do have a better insight than Joe Soap. The biggest cost in the production of protein for human consumption, be it beef, pork, poultry or dairy is feed costs, in some instances as high as 70% of total costs.The composition of this feed can vary from 60 to 90% maize inclusion which supplies the energy source. The protein source in the main supplied by soya and it's by-products, in some feeds these two ingredients make up 90% plus of the ration. ARL is the biggest supplier of animal feed to the livestock industry in SA and the 2nd biggest producer of broilers, this makes them one of the biggest if not the biggest consumers of yellow maize in the country, hence the movement of the share price inversely tracking both maize and soya price. ARL's interim results for the period ending March are due in a couple of weeks and should be very good, however those will be historical and we have to look at what lies for the year ahead. so with the new maize crop and futures trading in the region of R2400 and higher, that is 50% higher than the immediate past season, ARL trading up to 220, somehow I don't think it's gonna happen. My guess is it will trade in a pretty narrow band between 165 and 180 till year end. as stated above one needs to keep an eye on the maize price for this and others in the same industry, QFH, SOV and to a lesser extent now that they are slightly more diversified RCL.
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Frequent Contributor
Thanks, Prancing, for this valuable bit of analysis. I give weight to your view, and will not today react to what looks like the breakout I was waiting for. Much obliged.
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Super Contributor
Murphy's Law, I post and the share reacts in a way that I should have a rethink. However, I think it could be reacting to what I'm sure is going to be an excellent set of interim trading figures, I say that, because we've just had a record financial year ending Feb 2015, but setting our sights and budget far lower for 2016. Looking forward to their results.
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Super Contributor
As forecast they creamed the last 6 months, however as stated previously growth going forward for the next 12 months will be subdued if any growth at all IMO. I should imagine with what lies ahead the dividend cover will be greater than normal, although I still expect a decent one at that.
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