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 QFFI's Global Seafood Magazine - January 2010  |
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Shrimp Market Outlook for New Year
High unemployment, more home mortgage foreclosures and bank loan defaults, government presses running overtime printing weak dollars, and shaken consumer spending confidence does not add up to rising appetites for shrimp partying. But we can hope – and promote sales! Anyone involved in the shrimp industry who tells you what’s going to happen in 2010 is fooling himself or herself. There are simply too many conflicting economic indicators to project an accurate forecast. However, this does not mean that business going forward will be gloomy. There is still a lot of business out there; it’s just not as good as it was. At this writing, there are promising economic reports that indicate the worst of this recession may be over and that the post-crisis economic landscape will become clearer in 2010. Well, maybe. Rich world economies burdened by debt and high unemployment face a long, slow, bumpy recovery. Consumers remain anxious about their jobs and are still hesitant to spend. Unemployment is at 10% in the United States, which means that about 16 million people are still out of work. The sad reality is that many Americans who lost their jobs in the last year or two may never return to their old industries and may never again make the kinds of salaries that provided them with a comfortable, middle-class lifestyle. Joblessness is the primary economic problem facing the country today. Here are some of the issues that will have an impact on the shrimp market in 2010: Continuing high unemployment is causing a serious drop in consumer expectations and prospects for a quick economic rebound. Uneasy consumers likely will continue to curtail their spending, which drives about 70% of the US economy. Added to this, a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. The proportion of homeowners with a mortgage who are either behind on their payments or in foreclosure has hit a record high for the ninth straight quarter. Typical of recessionary environments, consumers have cut back on durable goods because these purchases can most easily be delayed. They have also cut back or altered their food purchases at retail and especially at foodservice. Both restaurants and supermarkets are facing recession-generated competition that is forcing prices down to retain customers and to keep product moving.
Shrimp consumption has been impacted about 10% because, even with lower pricing, consumers are spending their money on the best value they can buy for their families. This means more money is being redirected to other center-of-the plate proteins where there is better perceived value. At the end of the day, consumers are still spooked by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. This uneasiness will likely continue well into 2010 and possibly beyond. People have to eat, but they do not have to eat shrimp. Companies will have to offer more value through pricing and promotions to sustain sales in a very tough economic environment. In the third quarter of 2009, lenders in the United States saw bank loans fall by the largest amount since the government began tracking such data. The implication is that nervousness among banks continues to hinder economic recovery. There is no question that credit availability is an important issue for any economic recovery. If shrimp importers, distributors, retailers and restaurants cannot obtain the loans they need to operate their businesses, then they will have to make cuts in personnel and inventories to keep their operations functioning, or close down. Government officials have stepped up pressure on banks to make more loans in recent months, but it may not be enough to have much impact for most of 2010. Over the past three years the US dollar has fallen 30% to 50% against many of the world’s major currencies, and it could fall even further because of the Federal Reserve’s efforts to fight the recession by printing trillions of un-backed dollars, notes and bonds. This is a strategy that is unsustainable. A prolonged, uncontrolled further decline in the dollar could ignite inflation in the US and cripple the efforts of America’s trading partners by making their exports more expensive. A good case in point is the Indonesian currency. Since January 2009, the dollar has declined 13.4% against the rupiah. US shrimp importers have had a difficult time buying from Indonesia due to rupiah appreciation against the dollar. This has led to a disconnection between the prices offered by Indonesian packers relative to US market prices. The result has been a significant decline in shrimp exports to the US, caused by a weak dollar coupled with some serious production shortfalls earlier in the year. The dollar has fared better against Thailand’s baht. Since January 2009, it has declined 4.6% against the baht, but Thai packers have been able to adjust their prices to remain competitive. The result is that Thai exports through October have exceeded 2008 totals by some 3.3%, or about 11 million pounds. The implication for shrimp prices in 2010 is that if the dollar continues to decline, the result will be a loss of confidence in the value of the American greenback, and this will result in inflation. If the currency’s value plunges further, it could mean much higher prices as the year progresses. As the economy unraveled and consumer sentiment deteriorated this past year, importers, wholesalers and distributors all moved to quickly cut inventories. In better economic times, importers have traditionally carried a two to three months of inventory-to-sales ratio. A year later, heading into the beginning of 2010, many importers and distributors were carrying significantly less inventory, some as low as one month of inventory-to-sales ratio. The impact has been a drop in sales revenue, but also resulted in faster turnover with lower holding and financing costs that had a positive impact on the bottom line. With lower inventory positions, and seasonally less production output by overseas packers expected in the first half of 2010, some holes have started to appear in US inventory holdings. This deficiency will most likely cause some modest price increases as importers and end users scramble for the available stock. Prices could be pushed even higher by inflationary pressures brought on by a further weakening of the dollar. Shrimp imports through October 2009 showed a small 3.3% decline of 33 million pounds against similar figures for 2008. It is projected that year-end import figures will most likely fall close to this -3.3% figure. If so, it would mean a year-end shortfall of about 40 million pounds when compared to 2008. Looking back at the last four years of imports, the picture is one of no growth in imports [see chart above]. This lack of growth may indicate that equilibrium has been reached between production and demand. It also may mean that until the global economy gets moving again, unemployment drops to much lower levels, and consumers start spending again, imports will most likely stay in the range seen over the last four years. Any sudden upsurge in imports would most likely force prices down due to an oversupply situation relative to consumption. Market prices for white shrimp in 2009 remained in a rather narrow trading range. Prices tend to follow production peaks and valleys. In general terms, the peak production period for white shrimp is in the summer months. US prices generally show a modest rise in the first six months, driven by lower production and less availability. As production peaks in June and July, prices tend to retreat over the late summer and autumn months back close to spring levels. In 2008 prices started moving up in late spring due to soaring fuel prices and their impact on production and distribution costs. Prices for medium HLSO white shrimp moved up about 20%. In mid August, prices started moving lower and ended up in the fall months back to where they were in late spring. Prices in 2009 followed a similar pattern, but went up by only about 10% for medium and small whites. The 2009 pattern is most likely what can be expected in 2010 [see above chart]. Outlook Summary The worst of the global recession may be over, but there are still enough economic problems to cause concern as the new year is rung in. High unemployment remains a reality, along with weak consumer spending, a weak dollar and continuing problems in residential and commercial real estate markets that present serious challenges to a full economic rebound this year. Shrimp imports should continue in the same pattern that has been seen over the last three to four years. If the dollar weakens further, there could be a drop off in imports coupled with higher prices driven by higher inflation. Prices appear to be in a pattern consistent with the amount of available supply. Don’t look for any significant increase in supply, or any big movement in prices. On balance, 2010 should mirror 2009 in these two aspects. Tips for Surviving and/or Thriving In conclusion, here is a list of nine strategies for shrimp traders to consider putting into action during 2010:
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