Shrimp prices could ‘soften’ : March 11. 2011
Eva Tallaksen : IntraFish
Prices for shrimp raw material are around 20 percent to 30 percent higher than last year, but this should go slightly down around spring, the head of a South East Asian seafood exporter said.
While prices for larger sizes have somewhat abated since December, prices for smaller size shrimp have risen sharply since December, said Jim Gulkin, founder and head of Thailand-based Siam Canadian.
“Compared to same time last year, shrimp prices from Asia are much higher, on average 20 percent to 30 percent,” Gulkin told IntraFish.
In the case of Thai shrimp — shell-on easy peel and cooked peeled tail-on — large sizes are up 20 percent to 30 percent on the first quarter of last year, and small and medium sizes up 20 to 25 percent, Gulkin said.
Although prices have hit consumption only “to a degree,” he said, demand for smaller sizes has increased as buyers seek to limit costs.
This has, in turn, pushed prices for these smaller sizes up sharply since December, Gulkin said. In contrast, large sizes have gone down in price in the past months as sellers are still trying to clear inventories.
According to Gulkin, prices are likely to soften around April to May, as Thai production ramps up.
“I expect we could see a softening in prices to some degree. Possibly as much as 10 percent or even 15 percent on some sizes.”
The growth in production will be led by Thailand, which expects to increase production by 5 percent to 10 percent, but also in other shrimp producing nations including Indonesia, India and Vietnam, he said.
Both Indonesia and Vietnam’s shrimp production suffered from problems in the past two years. In 2009 and 2010, diseases wiped out a big portion of Indonesia’s crop. In Vietnam, bad weather also dealt a blow to its production of black tiger and vannamei last year.
However, that’s recovering and production should increase in both these countries this year, Gulkin said.
“The point is when you have a great year for pricing for the farmers, there’s great incentive for the farmers to grow shrimp the next year, so you’re going to have better production.”
On the other hand, that does not mean prices will return to levels of 2010, he said.
Instead, they are likely to stay 10 percent to 15 percent higher than last year. That’s provided that the situation in the Middle East, particularly Libya, does not “spin totally out of control and continue to drive oil prices up to the point where they snag further economic recovery in the United States and elsewhere.”
Pressure on smaller shrimp…
Gulkin says the price increase is especially true for smaller size shrimp (sizes 31/40 and 61/70), for which demand has grown rapidly in recent months as retailers or foodservice buyers try to move down to smaller sizes to maintain their price points.
That means prices for smaller Thai shrimp have risen by 10 percent in price since December.
“In many cases, retailers, restaurant chains are dropping sizes. But not everyone can do that, there are many retailers that have fixed lines that have been going on for years and it’s not a simple matter to go from a 26/30 to a 31/40. For a national retailer, it’s not a simple matter,” Gulkin said.
In Europe especially, retailers are less flexible than in North America, he said. “They’re more conservative in terms of the retail trade there, they don’t mix and match and switch around as much. The United States and Canada they tend to be a bit more flexible like that.”
To some degree, he said, some “value engineering” is taking place, where retailers may start selling smaller packs.
However, gauging the extent to which that is happening is hard.
… but large sizes down
On the other hand, an abundant supply of large sizes (sizes 16/20 and 21/25) has seen those products decrease in price by around 10 to 15 percent since December, Gulkin said, while prices for medium shrimp have remained stable.
That trend is partly a consequence of the Gulf oil spill. The Gulf produces mainly large size shrimp, so the spill drove up demand for those sizes from Asia. As a result, a lot of buyers including importers and retailers overcompensated for the shortage of Gulf shrimp by buying too much of these sizes, Gulkin said.
“Then, because the prices went so high, they found that it was more difficult to sell them, the consumption dropped and I think on the big sizes the inventory is still pretty high in the United States. So sales are still pretty slow on those sizes.”
This situation has caused the gap between the price of small and large shrimp to narrow down. That, in turn, could push demand back up for larger sizes.
“Pricing becomes difficult because the gap now between the large sizes and the smaller ones is smaller. So instead of a $1 gap, for instance, you end up with a $0.50 gap.”
“Then you have such a narrow difference between the large size and the others that people start questioning the point of having the smaller sizes.”
Passing on the high prices
Shrimp account for 55 percent of Siam Canadian’s sales, and 90 percent of all its sales from Thailand. The company, which is based in Bangkok and was founded in 1987, exports a variety of seafood, mainly from South East Asian countries into North America and Europe.
As prices have increased, Siam Canadian has passed on this increase in its new contracts.
“For new contracts, yes, without question,” Gulkin said.
“Except when speaking in terms of a highly value-added products where the seafood raw material component is relatively low, raw material costs always constitute the majority cost component of the finished delivered seafood product. Therefore, realistically there are no producers or exporters who would have the luxury of not passing on the increased costs to their buyers for new contracts.”