Prices for shrimp raw material in India are coming down, with the US market, the main destination for the Asian country’s products, also in the doldrums, sources told Undercurrent News.
Industry players are hoping promotions start in retail now Thanksgiving is over, in order to stimulate the market.
During January’s Global Seafood Market Conference, held in Miami, Florida this year, executives said they hoped the good supply of shrimp and low prices — seen as the “new norm” by an analyst from lender Rabobank — would mean retailers could promote.
Low-price period a chance to ‘make shrimp great again’
This is yet to happen, however. “We have been hearing about promotions now, as the holiday season starts, but we haven’t seen it yet. But, historically, we have seen it. What’s happening now is, they [retailers] are making money with shrimp,” Jeff Sedacca, president of Sunnyvale Seafoods, Zhanjiang Guolian Aquatic Products’ US division, told Undercurrent.
“They will continue to do so until sales slow down and the opportunity to make more money by doing more sales rather than a higher margin.”
“We have seen it before when prices dropped and they started promoting and sales rocketed,” he told Undercurrent.
“You know how importers here are, once they have inventory they need sales and do sell cheap at times. Business should get much better after Thanksgiving [which took place on Nov. 22],” a US importer, who declined to be quoted by name, told Undercurrent.
Prices for 41/50 count, headless shrimp in the US market have dropped to around $3 per pound, from $3.50/lb a few weeks before, sources said. A recent report from Seafood News, citing data from part-owner Urner Barry, said prices are the lowest they have been in the US market for three years.
“Raw material prices are coming down but not to the extent of the weakening of prices we are seeing in the US. There is definitely a disconnect,” an executive with one large Indian shrimp supplier, who asked not to be quoted by name, told Undercurrent.
Taking the rough figures of $3.50/lb around a month ago and $3/lb now gives a drop of 14%. Looking at the Indian shrimp raw material sizes on Undercurrent’s prices portal, 60 per kilogram count are down 14%, from week 43 and week 47, from INR 330/kg to INR 285/kg. Then, the other sizes are down between 2% for 30-count and 8-13% for the other sizes.
According to the data, 40 count shrimp is down 10% to INR 385/kg; 50 is down 8% to INR 330/kg; 70 is down 12% to INR 265/kg; 80 is down 11% to INR 240/kg; 90 is down 12% to INR 220; and 100 down 13% to INR 200/kg.
“The [US] market is moving down simply because a lot of cheap product that was booked in May-July at extremely low levels is hitting cold storages now. There is a disconnect between raw material costs and importer selling prices here. So, offers to packers [in India] will continue to move down reflecting that,” another source, with a major US buyer, told Undercurrent, also asking not to be named.
“We are seeing some correction now; I don’t think it’s going to be a crash like we had earlier in the year. Then we are going to come into the season where we go into the season where there isn’t much shrimp in Thailand and Vietnam and Indonesia is going to wind down by the end of January. The time when there is no shrimp coming from anywhere. And that will get absorbed,” said Sedacca.
Indian prices started the year high and then started to decline around week seven.
“The prices dropped so much in India in April-May, farmers did not seed for the next crop. Then, there was a big drop in production just at the time factories need to process for year-end orders. But there is also more factories online this year than last,” Jim Gulkin, CEO and founder of Siam Canadian Group, a Bangkok, Thailand-based, pan-Asian frozen seafood supplier with an office in India, told Undercurrent.
“There have been eight-ten plants set up in India and some new capacity in Indonesia,” he said.
“As the prices dived in India so much in April, the farmers did not re-seed. Then, in August and September, the packers needed shrimp to meet orders for the year-end,” he said.
Several new plants have started up in India, just at the time the harvest normally slows down between crops, Sedacca told Undercurrent.
“There was a huge increase in India in processing capacity in the low season and not enough raw materials to keep them all working. So, the prices kept going up to keep the plants supplied. But there was a finite amount of raw material. They paid more for the same volume. Paying more does not create more product, it just forces everyone to have a higher cost for the same amount,” he said.
Farmers were looking leave their ponds unseeded, but then the prices rising saw them go back in, he said.
“We heard farmers were not going to seed, because of the prices. That was true, temporarily. Then, we saw prices start to rise as people start to think about their farm being empty, and then they start seeding. It’s possible the price would have been up more. However, as they seeded late, the shrimp they are harvesting is smaller, so India is producing a lot of small-to-medium size shrimp right now, which is not their focus or target,” he said.
“Especially in the north, in West Bengal, Orissa and Surat, they have to get shrimp out before the weather turns, anything seeded late is going to come out smaller. We are getting sizes we didn’t ever get from India. 31/40s 70/90s sizes, we usually look to Vietnam and Thailand for,” he said.
Then, the other factor coming on strong is Indonesian production, he said.
“Indonesia is going into the main production season and will have slightly more production than last year, 5-10% higher. It’s around 400,000t,” Gulkin told Undercurrent.
“They have been very successful and are producing a lot of shrimp. They have also built some additional capacity. Like India, there is increased capacity, but not outstripping the increase in supply,” said Sedacca.
Multiple new plants have been built in Andhra Pradesh, the main production hub in India, with more plants, such as a 20,000t-capacity one from Apex Frozen Foods, coming online in the next few months.
“They have all overstretched themselves, but some have the financial ability to overstretch. The second tier guys, they really rolled the dice. If the production continues to increase the way it is, they will be ok. Think about the hotel business, they plan for overcapacity, which will create the demand. But you plan for a few years of this,” said Sedacca.
“There is going to be a continued increase in the amount of shrimp available. In India, there is a lot of farming land to come online. And it’s still a good investment,” he said. “There will be increased development of shrimp farming. We are seeing it in Indonesia and we will see it in India. If Thailand and Vietnam continue to bounce back, it’s going to be even more.”
In a report published in September, Gorjan Nikolik, an analyst with Dutch lender Rabobank, gave a prognosis of more shrimp and lower prices for the future.
He predicted global shrimp production — of vannamei and black tiger — would pass 3.5 million metric tons in 20-18
As a result, the global shrimp raw material price crash seen in the first half of 2018 is indicative of a “new reality” when it comes to levels going forward.
The first signs of a price crash were visible in 2017, as supply began to exceed demand and China’s formerly unsatiable appetite eased somewhat, he wrote.
The report — “Keeping up with the Crustaceans” — notes the price crash occurred during the first harvest of 2018, as a result of strong double-digit supply growth from India and Ecuador, though growth was also reported in Indonesia, Vietnam and others.
“In our view, although a mild short-term price recovery is likely, the lower price level, in the absence of a major new disease outbreak, does represent a new reality. A reality in which price levels dictate supply trends even more than biological supply-side challenges; a shift from a supply-driven industry to a more demand-driven one.”