SEAFOODNEWS.COM by John Sackton — January 6, 2015 — 2015 is going to be a much tougher year than expected in the seafood industry. This was brought home this morning by headlines about economic turmoil in Europe.
We are continuing our experiment of putting our observations on the news into a separate column, instead of including them with our daily news summary. Also we are trying different names/headers.
2015 is going to be a much tougher year than expected in the seafood industry. This was brought home this morning by headlines about economic turmoil in Europe.
The last few months have been good for the US seafood industry, with a wind at our backs driven largely by the strength of the dollar and the improving US economy. But that wind is threatening to become a hurricane.
The Euro hit a nine year low against the dollar yesterday, and will be heading even lower. Meanwhile in Japan, the yen is hovering near 120 to the dollar, and most expect it will soon by at Y 125 per dollar.
Lets look at how that may affect shrimp, salmon, and whitefish.
Shrimp prices have been falling for several months, and the market is searching for a price level that will stick. But a lot of shrimp is priced in dollars, such as from Ecuador, for example, and the weak Euro is going to limit exports. A weak Yen is also cutting shrimp exports to Japan.
That shrimp is going to come to the US, where the economy is better, the currency is stronger. With more producers targeting the US market we may see too many trying to go through the same door – meaning that the stability we are all looking for in the shrimp market may be harder to find.
For those holding any inventory, that is a problem.
Salmon prices have come down, but stabilized. Although salmon markets are globally diversified, the currency shift will bring more European salmon to the US, putting pressure on Chile, and at the same time limiting Chile's sales into Europe and Russia at the margins. Japan's currency weakness is also a problem for Chilean producers. Although not as dramatic as shrimp, the US will likely see more salmon in 2015, again as the market with the stongest economy and currency. As salmon is sold on contract and not held in inventory, but in live pens, the impacts won't be felt by importers, but by Alaskan sellers of wild salmon who will face weaker export markets and more competition in the US market for an expected big wild harvest.
Whitefish is also likely to be affected. European buyers of pollock, and Japanese buyers of roe and surimi, will see the costs of these items climb sharply. The resulting volume cutbacks will create price volatility.
If you think seafood prices cannot fall very much after three good years, look at oil. Oil went briefly below $50 a barrel yesterday, and is now selling at about half its price of over $100 a barrel seen last June.
Seafood is not as commoditized as oil, and a lot of seafood items are 'sticky' in that they have special requirements, niche markets, or complicated production specs that shield them from rapid price changes. But seafood is not immune to the laws of supply and demand, and all the news today makes me think supply in the US is going to grow substantially, possibly beyond the ability of US consumers to absorb.
So, the most difficult time to be a seafood producer or importer is when prices are falling and your current inventory is losing value by the week. Welcome to 2015.
This editorial originally appeared on SeafoodNews.com, a subscription site. It has been reprinted with permission.