Weak shrimp demand, not supply, seen as main cause of low US prices : July 13, 2015
Tom Seaman – UNDERCURRENT NEWS
A lag in US retailers passing on the decrease in vannamei shrimp raw material prices means consumption is not picking up, sources told Undercurrent News.
Production in 2015 is strong, but the main driver of the weak prices for shrimp raw material is demand, according to several executives in the global shrimp sector.
“I think the low prices are being 80% caused by weak demand and 20% oversupply. In previous years, even when the prices where very low, the US would come in and buy,” said an executive with one of Asia’s largest shrimp suppliers, who did not wish to be quoted by name, source A.
The picture is “100% demand driven”, said Marc Nussbaum, president of International Marketing Specialists, a US importer.
“Many are waiting and some still have plenty of shrimp, but can’t wait much longer. If you booked in Indonesia today won’t ship until end august, so you’re just getting it in for October,” he told Undercurrent.
“I think most Christmas buying will be done in the next few weeks or right after Ramadan,” said Nussbaum, adding prices seem to have hit the bottom, for now. Ramadan finishes on July 17. Prices in Ecuador, India and other Asian production countries are very low.
At the same time, US wholesale prices are flat at a low level, having been on the slide since the start of the year.
New York frozen wholesale prices, collected by the US National Marine Fisheries Service, for Indonesian vannamei, easy-peel, headless, shell-on, 41/50 per pound show a level of $3.95 per pound for week 30, the same as week 25.
Looking back to this time in 2014, prices where at $5.15/lb.
No ‘big buy’ yet
US importers are said to have big inventories of shrimp and are holding off on a “big buy”, which usually comes in June or July. The healthy level of US stock can be seen in the drop in imports for May, the latest figures.
January to May imports are up 6.92% year-on-year, to 219,878 metric tons. Taking May in isolation, imports are down 3.2% y-o-y, to 39,562t, however.
“I definitely think this is demand driven. The “street” is slow. Retailers haven’t lowered prices yet to the end consumer, nor do I expect them to until the holidays,” said an executive with one US importer, not wishing to be quoted by name, source B.
“I think pricing will remain soft until Q4 2015 and beyond,” he told Undercurrent.
“I think the problem is really lack of demand,” said Jim Gulkin, managing director of Siam Canadian Group, a Bangkok, Thailand-based frozen seafood supplier.
Retailers, Gulkin said, are not trying to move volume.
They “just want to increase margin and don’t mind if they sell less”, he told Undercurrent.
The wider economic picture is also a cause for concern.
“With a worrying situation developing with China securities exchanges and its economy in general, as well as the situation with Greece, it doesn’t look like it is going to get better anytime soon,” he said.
Buying in Europe and Japan is also slow, due partly to the strength of the dollar compared to the euro and the yen.
“It’s not official yet, but Canada is now said to be in recession. These economic problems could also have a knock on effect and slow the US recovery,” he said.
Gulkin echoed the picture on supply presented by source B.
“Raw material prices in Thailand, Vietnam, India and Indonesia are currently too close to cost or even below cost, and that will definitely impact quantities the farmers seed for the remainder of the year. Look for tight supplies from September onwards,” said Gulkin.
Don Berger, director of frozen products with US-based CleanFish, said it all comes back to supply, however.
“This is supply driven. Shortages due to early mortality syndrome prompted buyers to reduce their use of shrimp. Thus reducing the demand. Record prices inclined more farmers in non-affected areas to increase supply,” he told Undercurrent.
“We now have record supply, even without Thailand’s full participation. The most likely outcome is further reduction of prices by about 15-20%. This will spur retail demand and incline restaurants to come back to shrimp. We need a $3 [per pound] 26/30 to get this market moving,” he said.
A European buyer said he feels the weak US demand comes down the farming focus on smaller sizes.
“In my opinion, everyone seems to be harvesting smaller sizes — due to disease and early harvesting — and US demand has always been for the bigger sizes. This has taken the market by surprise, and I simply don’t think there is the same global demand for the smaller sizes,” he told Undercurrent.
As prices increase, everyone makes money, aside from the packers, said another US buyer, who did not wish to be quoted by name, source C.
“On the way down, it is a slow bleed for everyone,” he told Undercurrent.
“Slow cost averaging is the only way to play it. The other markets — Europe, China and Japan — are not that active either,” he said.
The general feeling from US importers is everyone is working their way down in inventory–week by week—replenishing only what is sold, he said.
Although Gulkin and others feel prices have “hit the bottom”, source C feels there is still some room for them to come down.
“Historically, prices have a lot of room to go down–do not believe so much that farmers are losing money in today’s market—they just are not making as much,” he said.