Thai shrimp packers seeing more US demand, improved supply : September 23, 2015
Tom Seaman – Undercurrent News
Shrimp processors in Thailand are enjoying a better business climate at the moment, with a weak domestic currency and improved raw material supply as farmers recover from early mortality syndrome (EMS).
For processors, particularly those focused on the US market, the weakness of the domestic currency means Thai firms can be much more competitive against rival production countries.
Indian production is currently down and prices are rising, also likely to be a cause of increased demand for Thailand, sources told Undercurrent News.
“From time-to-time, Thailand shrimp prices on certain sizes and items can be competitive,” said Satasap Viriyanantawani, general manager for the Thai business of Siam Canadian Foods, an Asian frozen seafood supplier headquartered in Bangkok. “Whenever we are the most competitive, then the US buyers [place] multiple orders covering their need for a certain period of time in Thailand,” he told Undercurrent.
Demands from Thai packers who got the contracts from the US will likely remain strong through the end of November, which is good news for shrimp farmers.
US demand has increased shrimp production by 20% from last year, according to Rittirong Boonmechote, president of the global shrimp business of Thai Union Group, which recently introduced a minimum price guarantee for shrimp farmers.
“Lately, more and more packers are expecting 250,000 metric tons total production for Thailand 2015. Some are even expecting 275,000t, due to a much better output during Q3 and more in Q4,” said Viriyanantawani. “It is hard to predict a norm for Thailand’s annual production, maybe 300,000t is minimal.”
Thailand’s shrimp processing sector has downsized due to the impact of EMS, but there is no concern it won’t be able to deal with the apparent coming increases in volume.
“I have no concern about that. It is more challenging to downsize but going into opposite direction is a lot easier,” said Viriyanantawani.
The majority of processing facilities in Thailand were built for large volume. When we were suffering the shortage, we had to let go some of workers to keep company survive but all facilities are still there,” he said. “Once supply is picking up, all packers will adjust their production accordingly. Supply is the headache, not processing capacity.”
As the production has increased, the Thai baht has weakened to 36.07 against the US dollar on Sept. 21, compared to 32.37 on April 21.
Development of the Thai baht against the US dollar over the last year. Source: Bloomberg
“The weak local currency will definitely support processors who export worldwide,” said Boonmechote.
For pending orders, this means packers are able to enjoy some extra profit, as they were using a different exchange rate when offering out, said Viriyanantawani.
“However, for new orders, packers are using new exchange rate to lower their price and make it more competitive. Thailand’s shrimp cost is higher than other countries and in order for us to be competitive; we have to try everything to sharpen our price. The new exchange rate does help,” said Viriyanantawani.
Indian shrimp prices have firmed rapidly in recent weeks, as raw material volumes have dried up. There are some who feel the return of demand for Thai shrimp will soon dry up, as the next Indian crop arrives.
Another Thai packer, not wishing to be quoted by name, said although it is getting better he thinks it will be only short term.”
“The exchange rate can help. But, in the end, price from other countries is still much, much cheaper than us,” he told Undercurrent. “I think in the next three or four weeks, the new crop of shrimp from India will come out and the price will go down again.”
The shrimp market picture is very much one in which the US buyers are in the box seat, said Viriyanantawani.
“When Thailand is not competitive, then they [buyers] will go to other countries like India, Indonesia and Vietnam. The US shrimp buyers dictate price they want to pay and suppliers will have to follow. Buyers have too many options,” he said.
“If [no] Thai packers can match their price, they will go to other countries. If they cannot find anyone in any countries to match, sometimes those buyers will wait further then they will eventually get their price, maybe one or two weeks later,” he told Undercurrent. “It is proven that demand is softer than supply.”
‘Quick win’ for industry
The Thai Union minimum price guarantee is a “quick win” for the industry, said Boonmechote.
“For farmers, it means they have more confidence that the selling price at least not below their cost. They can continue their productions,” he told Undercurrent.
As for packers, it means having enough raw materials to fulfill orders and keep the factory running as well as keep workers going, he said.
Then, the market or the buyer “can ensure that they get products with reasonable cost”, said Boonmechote.
The company expects about 1,600 farmers will be involved.
Under the scheme, the company has committed to buy 12,000 metric tons of shrimp.
The guaranteed prices are set at a higher-than-average cost of shrimp farming for each size — for example, a size of 100 shrimp to the kilogram is set at THB 120, while the bigger size of 70 per kg is THB 150, reported the Bangkok Post.
Thai Union expects an average of 2,000t a month from the 1,600 shrimp farmers participating. Under the six-month scheme, farmers can decide to sell their shrimps to Thai Union at the guaranteed price or to other companies when the market price is higher.
Participants have until Oct. 7 to register, and the scheme will run from Oct. 1 to March 31 next year.
One source in the industry from a large processor, not wishing to be named, said the move from Thai Union was smart, as it seems prices have already hit the bottom.
Another, also with a large Thai shrimp supplier, said farmers need to buy feed from Thai Union in order to participate in the program. “It is a smart move from Thai Union. They get the supply and boost feed sales,” he said.
Boonmechote did not respond to request for comment on whether farmers have to buy feed from Thai Union to be part of the scheme.