Higher seafood prices here to stay

I have normally been a sceptic when people say prices have nowhere to go but up. My view from many years of watching seafood markets is that markets always go in two directions, and you can make money either way -up or down- if you know what you are doing.

Consequently in a rising market, I pay attention to signs of change: are inventories building, are buyers showing resistance, has a given product moved outside its normal trading band?

But looking for the thing that will break the trend may not be useful if something larger is afoot.

That is what I am now thinking: seafood prices are rising to a new value equilibrium. We are witnessing a transition to a new playing field where seafood is going to be more expensive, and higher priced, than in the past.

Almost across the board prices for major seafood commodities are above where they were in 2004. Whether it is swordfish, halibut, farmed salmon, pollock, lobster, crab or cod -- by far the great majority of seafood items are more expensive than they were 2-3 years ago.

Sure there have been individual price drops - a dramatic drop in snow crab and king crab prices, for example resulted in a burst of buying and a quick reversal.

But long term, two things have change which make me think we are entering into a new pricing regime for seafood- at least in North America.

First is the weakness of the U.S. dollar. Americans import about 80% of the seafood they consume; and therefore American buyers compete with Europeans, Chinese, Japanese, Russians and Latin Americans for many types of seafood. Notice that every single one of these markets, with the possible exception of Japan, has been getting stronger, and richer, in relation to the U.S.

Last year, China provided a greater percentage of the growth of global domestic product than did the U.S., and this trend is likely to continue.

IN both China and Russia, an emerging middle class is demanding seafood items, and more and more U.S. buyers find themselves competing with other markets to secure product.

Vietnam has so strongly turned to the European market for its catfish that prices are now set there - in Euro, if U.S. buyers want to compete.

The expression of the growing weakness of the U.S. is in its currency. Since we buy fish in dollars, and other countries are seeing their currencies grow stronger, we have to pay more in dollars just to keep up. This is not something that will reverse soon, as it comes from the long term problem failing to live within our means, and the belief that the dollar would somehow be bailed out by others.

Coupled with the currency weakness is the growth in demand. In China and Russia, it is largely the growth of a middle class demanding high quality seafood that is driving demand. Same in many parts of Latin America.

In Europe, the benefits of seafood are well established, and the strength of the Euro has allowed buyers to keep prices relatively steady, despite the rising costs elsewhere.

Japan is the only exception here, since with an aging population it is consuming less seafood with every passing year. We recently wrote how Japanese seafood purchases at retail have continued their month to month decline for the past 12 months, and I believe this trend is almost unbroken for nearly five years.

Nevertheless, when supplies are tight the smaller Japanese market can have a big influence.

So, this brings me back to the original question: has there been a fundamental shift in the value of seafood.

I think the answer seems to be yes. More people in the developed world (including Chinese cities) can afford and want seafood, and the supply from wild sources is finite. We have seen in Chile with disease issues, and with the price increases in fishmeal, some of the limitations on growth in aquaculture. So, we may very well see a long term shift in the value of seafood as a commodity. That means some prices may never be coming down in the foreseeable future. That is really unexpected, certainly to a market analyst.

But if you increase the wealthy portion of the world population who demands expensive seafood, and the supply remains finite on the wild harvest side, and slow growing on the aquaculture side, you have a recipe for a permanent shift in value, so long as this relationship continues to exist. That means that high seafood prices are here to stay, at least until or unless something economically drastic happens - and that does not seem to be in the cards.

This has many implications - on sustainability issues, on IFQ values, on the trend towards consolidation in the industry, and the flow of banking money into the seafood industry to capitalize on the value shift. I will try and comment on each of these issues over the next few weeks.

Comments

[david b bailey]

Yes Sir your right iam one of those Georgia shrimpers and yes we have done every thing to upgrade and stay in the markets from installing new I.Q.F systems shorting drag times and keeping our quality perfect. any better prices HELL NO!!!!! .Rock bottom at best and we can thank the 10% who got all of the tariff monies and left us with nothing. THE PROCESSORS! We can thank them for running the rest of the shrimping fleet in the U.S. while they run and cash their byrd money checks while they are still dealing and selling imported shrimp on the side .Well God Help Them because there is a special place in HELL!!! for all of them. Thank You for letting me speak . Capt. David B Bailey. owner MISS CINDY NICOLE for right now.