Shrimp Market Update

March 14, 2008

Overview: US shrimp imports started the year off about even with last January. Imports of raw shell-on shrimp from black tiger producing countries were up 50% vs. year ago with black tiger shell-on and all peeled shrimp higher. Imports from white-producing countries were down 1.5% for the month. Of the top six countries exporting shrimp to the US, three are posting growth year-to-date: Vietnam +87.5%, Indonesia +60.9% and Mexico +8.5%, while Ecuador is -1.5%, Thailand is -12.5% and China is -26.7%. Chinese imports continue to spiral downward due to the FDA alert and high tariff rates.

The weaker U.S. dollar is expected to continue impacting the global shrimp industry throughout 2008. The detention of Chinese shrimp continues to impact the breaded and cooked shrimp markets, down 35% and 34%, respectively in January.

Black Tiger: In Vietnam, demand is relatively weak and prices remain stable. In the next few weeks, raw material prices may decrease slightly but not considerably due to higher fuel costs and the significant losses farmers suffered last year. Additionally strong U.S. and worldwide demand continue to place upward pressure on pricing. Currently, sizes 8/12 to 21/25 remain fairly plentiful with stable pricing. The larger sizes from 4/6 through 6/8 are already scarce with firm pricing and sizes 26/30 and smaller are only available in limited quantities.

Vietnam has emerged as one of the world’s top seafood exporters, with total aquaculture production rising 20% in January over year ago. In 2007, annual revenues were up 12% over 2006. The country is optimistic and projects Seafood exports to the U.S. will grow 15% in 2008. However, the declining value of the U.S. dollar is impacting Vietnamese exporters and producers as they face difficulty in converting U.S. dollars into Vietnamese dong (VND). Additionally, they are facing 20% higher production costs, so the extra 2% surcharge to convert U.S. dollars into VND is placing producers and farmers in a bind.

Indonesia is an alternative black tiger supplier who has had difficulty competing due to rising oil prices and the imposition of quality standards by a number of countries. The U.S. and E.U. remain the largest markets for Indonesia and the government is projecting an increase of 13% for 2008, following an agreement with both major markets regarding the quality of fishery products.

Black Tiger Industry Outlook for 2008: Larger size raw materials (4/6 through 6/8) are expected to remain scarce as farmers concentrate on increasing number of annual harvests and worldwide demand for these sizes remains high. Production of sizes 8/12 through 26/30 are expected to increase but strong demand will keep prices stable in 2008. The declining value of the U.S. dollar also continues to put pressure on pricing. The expected result is continued upward price pressure.

White Shrimp: In Thailand, pricing has not dropped due to pressure from the strong Thai baht coupled with reduced raw material supplies. Pricing is expected to remain stable though March. Farmers just recently finished stocking their ponds at the end of February for the upcoming harvest. Since prices were so low in 2007, farmers are taking less risk in 2008, and raw material supplies are expected to decline by 20-30% this year. In the upcoming season, mid-size shrimp are expected to be available in April, with larger sizes coming in July.

Thailand, one of the world’s leading shrimp producers, saw its production increase by 6% in 2007. However, in baht terms, the value of Thai shrimp fell by 11% from 2006 to 2007. The key problem facing the industry is saturated domestic markets, forcing shrimpers to rely on the more volatile export market for growth. Exporters to the U.S. are facing a double-blow from the baht’s appreciation. Additionally, they are experiencing increased competition from neighboring Vietnam and Indonesia, since the strong baht has weakened their price competitiveness.

In response to these issues, Thailand’s leading shrimp farming associations have called on the industry to reduce production by 20%, focusing on shrimp quality, not quantity to offset the damaging effects of falling prices on the industry. They are hopeful that by removing the oversupply issue, prices will begin to climb.

Ecuador is the leading shrimp producer in Latin America and recorded a banner year in 2007, with shrimp export values climbing from US$252M in 2002 to US$600M in 2007. Despite this growth and the favorable World Trade Organization (WTO) ruling, Ecuador is still facing problems with rising production costs and strong competition in the U.S.

Vannamei White Shrimp Industry Outlook for 2008: Thailand’s shrimp situation is expected to remain heavily dependent upon currency fluctuation, supply and the potential for natural disasters. In 2008, smaller sizes are anticipated to be harvested at the end of April with the larger sizes coming in July.

FDA Alert #16131 on Chinese Seafood and Food Safety Issues: In 2007, China’s reputation in product safety came under scrutiny and the FDA alert on Seafood was just one of many cases. In 2008, the Chinese government announced that it will introduce new standards for product quality as part of an overhaul of its quality control system. The crackdown will focus on 28 categories of food and exports will carry a quality certification mark in an effort to cut illegal shipments.

On the U.S. side, the FDA is considering opening satellite offices overseas as part of its effort to improve the safety of food, medicine and other products entering the U.S. Products come into the U.S. from 800,000 different sources and 300 different ports, so more emphasis will be placed on improving the quality of products on the farm and at manufacturing and distribution centers.

Contessa Shrimp is not imported from China. Contessa shrimp is raised exclusively in Thailand and Vietnam and processed under Contessa’s strict quality-assurance guidelines. No other brand in the shrimp industry takes more thorough measures to ensure quality than Contessa!

Gulf Shrimp / Wild Mexican Shrimp: Landings of Mexican wild shrimp are off 22% from last year’s record season, producing tight supplies, higher prices and a firm market. The Gulf Domestic market remains steady and unchanged.

New England Northern Shrimp – The Northern Shrimp season began December 1^st with a strong outlook, including abundant shrimp and reasonable prices. However, high fuel costs ($3.40 per gallon this year compared to $2.20 last year) combined with the fact the shrimp are staying further offshore may be complicating the season and making it difficult for shrimpers to make a profit.

Tariff Update – The Byrd Amendment expired on October 1^st, however, it will continue to pay out for a couple more years, on a declining basis since it applies to all duties collected until its expiration. Preliminary results of the second administrative review are trickling out and the results appear to be another round of massive tariff cuts. It appears rates in Vietnam for 29 companies would be slashed to 0% and in India, rates would decrease from 7.22% to 1.09%, both below the di minimus amount, meaning effectively that they would have zero tariffs, as has happened in Ecuador. This does not even account for the Feb. 29^th WTO ruling that the DOC must eliminate 100% customs bonds for Thai and Indian exporters and not use their zeroing strategy. The final decision will be announced by the DOC 120 days after the preliminary conclusion was announced.

Sources: Urner Barry

Seafood.com

NFI

Contessa Procurement Team

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