OUTLOOK FOR JOHN SACKTON DUNGENESS CRAB NEWPORT, OR NOV 2, 2017 - - PowerPoint PPT Presentation

OUTLOOK FOR DUNGENESS CRAB IN 2018

JOHN SACKTON NEWPORT, OR NOV 2, 2017

13TH PRE-SEASON DUNGENESS CRAB PRESENTATION

• Crab, shrimp and lobster market analyst since

1997

• Preseason price and market outlooks on shrimp

and crab for 20 years – Atlantic Canada, Alaska, and US West Coast

• Publisher of SeafoodNews.com News
• First Dungeness Presentation: 2005

DUNGENESS CLUSTER PRICES VS. SNOW CRAB

SHELLFISH

• Erratic Price

Movements depress purchases

• Shellfish has had very

high price volatility in recent years

• Currently lobster

meat and snow crab exhibiting over 50% price increases. Shellfish Price Volatility Continues to be High Snow crab Lobster meat Scallops Lobster tail 4 oz Farmed Shrimp

SNOW CRAB PRICES HAVE NEVER TRADED AT THIS LEVEL: $8.00 PER LB

$1.50 $2.50 $3.50 $4.50 $5.50 $6.50 $7.50 $8.50

25 year Price History for Snow Crab 2017

RETAIL CRAB PROMOTIONS 2 YEARS

5000 10000 15000 20000 25000 30000 35000 O N D J F M A M J A S O N D J F M A M J A S O

Stores

Retail Crab Promotions

Dungeness Snow Crab King Crab Other

DUNGENESS CRAB INCREASED PROMOTIONS IN 2017

5000 10000 15000 20000 25000 O N D J F M A M J A S O N D J F M A M J A S O

Stores

Dungeness Snow Crab King Crab Other Linear (Dungeness) Linear (Snow Crab) Linear (King Crab)

WHOLE COOKS VS CLUSTERS AT RETAIL

500 1000 1500 2000 2500 3000 3500 O N D J F M A M J A S O N D J F M A M J A S O

Stores

100000 200000 300000 400000 500000 600000 700000 800000 900000

Stores

2016 2017

RETAIL SEAFOOD

PRICES AT RETAIL ROSE MOST TYPES OF SEAFOOD HAD LESS VOLUME

RETAIL SUMMARY

• Dungeness Crab is Well Positioned as a Successful Retail item for 2017-18
• Pricing is favorable compared to snow crab
• Snow crab prices not likely to decrease until well after Dungeness Season
• Red King Crab Prices are coming down.
• Current backwards relationship between snow crab and Dungeness prices is likely to correct
• Whole Cooks will be major retail item.
• Domoic Acid Could have Impact to push more product to clusters/sections.

MACRO FACTORS FOR US

• US economy continues to expand
• Foodservice Traffic has declined for 6 Straight Months; with restaurant

sentiment weaker than in 2016. Foodservice was main driver of strong seafood demand in 2017.

• Retailers have cut back promotions of items like salmon and crab due to

high prices

• Hurricanes, Fires, and other disruptions of all have the potential to

destabilize consumer spending, and lead to lower demand.

• Percent of Americans who feel the country is on the wrong track has gone

up significantly. This can bleed into consumer confidence and spending patterns

RESTAURANTS IN US ‘FACING WORST PERIOD SINCE 2009’ SAYS MILLER PULSE

• Storms Hurt Restaurant sales by 40

basis points in Aug, Sept.

• But even without storm impact

same-store sales remain historically low, declining for 13 of the past 16 months.

• “the restaurant industry faces its

worst period since 2009.”

year over year declining traffic

SNOW CRAB USAGE IS BEING CUT BACK IN US

GULF CASINOS CUT BACK RED LOBSTER DE-EMPHASIZES SNOW CRAB

DUNGENESS ALSO HAS FOODSERVICE OPPORTUNITY IN 2018

• As shown by Red Lobster, Foodservice is willing to shift to Dungeness due to better

pricing and availability.

• This is mostly for clusters.
• Dungeness is now a very competitive substitute for Casual Dining, Buffets, and Casinos.
• This is in addition to the traditional West Coast Foodservice Demand, where many

restaurants must keep Dungeness crab on the menu.

WILD CARDS FOR 2018

• Economists Beginning to Worry about Recession in US as Fed is Tightening, But Many

Signs of Weakness Abound.

• Trump: His instability has had remarkably little economic impact so far. That could

change with the coming year if he escalates trade disputes that have potential for significant disruption with China or NAFTA for example.

EXPORT MARKETS ALSO IMPORTANT FOR DUNGENESS

• Live Exports to China have become a significant factor expanding demand for Dungeness
• This year there were several short-lived disruptions by Chinese authorities in response

to Domoic acid and other issues like Cadmium.

• Ecommerce continues to drive Chinese Seafood Import Demand.

US LIVE EXPORTS TO CHINA

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Per LB. Customs Price Pounds

2015 2016 2017 $/lb $/lb $/lb

LIVE EXPORTS TO CANADA

$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Prce per Lb Pounds

2015 2016 2017 $/lb $/lb $/lb

BC LIVE EXPORTS TO CHINA, US

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 2014 2015 2016

Canada Live Exports

United States of America China (Incl HK etc)

BC has not published updated export statistics for Live Crab, but it remains a major gateway for live shipment to China.

ECOMMERCE IS DRIVING PROCUREMENT IN CHINA

• First live Lobster and Crab Sales focused
• n hotels and banquets in China
• Competition and Lower Prices

brought lobsters and crabs to many mass restaurants.

• Ecommerce popularized imported

seafood like Dungeness, Lobster and King Crab.

• Alibaba’s Hema Fresh Stores are

revolutionizing merchandising Hema: All Commerce on Smart Phone: Order, Delivery, Pick-up or In store shopping Alibaba uses Customer data to determine locations and what to carry

BANNER YEAR FOR CRAB FISHERY IN 2017

• West Coast Landings Totaled 58 million pounds through July.
• Oregon saw record landed value as good volume combined with high prices
• California value in 2017 increased by about 33% over 2016.
• Washington landed 17.1 million pounds but with lower overall value than in 2016

DUNGENESS SHOULD BE IN FAVORABLE POSITION IN 2018

• Other crab products at record prices last year
• Wholesale Prices were near record levels two years ago due to supply cutbacks but

section prices have since declined

• Red King Crab is now correcting from high prices
• Snow Crab is still at record highs, but prospects are for lower volumes in 2018
• Dungeness has stable pricing by contrast, so can take advantage of market demand.

22

DUNGENESS ISSUES FOR 2017-2018

• Will Season Open on Time?
• Will volume be similar or above last year
• Lately there have been Domoic Acid Issues in California
• Inventory situation is good. With favorable pricing, no signs of excess

inventory

• Both retail and foodservice likely to expand use of Dungeness in 2018

if supply is there

• China continues to be a very strong market

DUNGENESS SECTIONS AND WHOLE COOKS HAVE STABILIZED IN PRICE

Other Products Have Come Down from their Highest Prices Dungy whole cooked + 30% Dungy sections + 20% Lobster meat +60% Snow crab +50% Dungeness section prices have declined over 2 seasons Snow Crab May be vulnerable to a future price correction

SNOW CRAB IS NOT IMMUNE TO A FUTURE MARKET CORRECTION

Other Products Have Come Down from their Highest Prices 21-25 shrimp Crab meat Lobster meat Snow crab However no relief from short Supply of snow crab is in

• Sight. Russia is selling most
• f it snow crab to Japan.

OREGON DUNGENESS LANDINGS

26

Jan Jan dec dec Jan

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 2000 4000 6000 8000 10000 12000 14000 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 000's pounds

Oregon Dungeness Landings and Price

Landings Ex Vessel Price

5000 10000 15000 20000 25000 30000 35000

Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17

Monthly Dungeness Landings By State

Washington Oregon California Alaska

CALIFORNIA NOV DUNGENESS LANDINGS RETURN TO NORMAL

28

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 2012 2013 2014 2015 2016 000' lbs

California November and Season Dungeness Landings

Calif november Calif Main Season

COAST WIDE NOV-DEC

• JAN LANDINGS

29

5000 10000 15000 20000 25000 30000 35000 40000 45000 2013-14 2014-15 2015-16 2016-17 000's Pounds

Nov-Dec-Jan Landings of Dungeness

CA OR WA

NOV-JAN COMPARED TO ENTIRE SEASON

10000 20000 30000 40000 50000 60000 70000 2013-14 2014-15 2015-16 2016-17

000's pounds

Coast Wide Landing Months

Nov-Jan Rest of Season

OREGON PRICE AND VOLUME 2017

31

Source: ODFW update

$1.86 $3.00 $2.89 $2.95 $3.65 $4.97 $5.55 $5.06 $4.33 $4.48 $4.74 $4.00 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

POUNDS

Oregon Dungeness Landings and Price 2017

Oregon Oregon Price

PRICES AND LANDINGS FOR THREE YEARS

32

1 2 3 4 5 6 7 8 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Oregon Landings Price

DUNGENESS PRICE HISTORY

• 3 Market segments: clusters; whole cooks, live
• Volume and demand for whole cooks and clusters determines initial

pricing

• If Domoic Acid Suppresses Demand for Whole Cooks, Clusters are

Key to Pricing

• Volume, section orders, and live / fresh demand determines subsequent

pricing, including export demand

• Dungeness pricing heavily dependent on pace of landings and total

volumes

33

DUNGENESS ANNUAL PRICING

34

Source: Urner Barry

$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Dungeness Annual Pricing (Cluster, Ocean run)

High Low Avg

LIVE IMPORT PRICES TO CANADA AFFECTED BY CURRENCY

35

Source: Urner Barry, Canadian Customs data

$1.50 $2.50 $3.50 $4.50 $5.50 $6.50 $7.50 $8.50 $9.50 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

Dungeness pricing

UB Crab, Dungeness, Whole Ckd, 1 1/2 - 2 lbs. UB Crab, Dungeness, Cluster, Ocean Run CA live Imports - $US

PRICE COMPARISON WITH KING CRAB AND SNOW CRAB

36

Source: Urner Barry Comtell

$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $18.00 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

Dungeness , king, snow crab price history

UB Crab, Dungeness, Whole Ckd, 1 1/2 - 2 lbs. UB Crab, Dungeness, Cluster, Ocean Run UB Crab, Red King, Leg & Claw, 16-20 ct. UB Crab, Snow, Newfoundland, Cluster, 5-8 oz.

DUNGENESS VS SNOW CRAB PRICING

$3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

UB Crab, Dungeness, Whole Ckd, 1 1/2 - 2 lbs. UB Crab, Snow, Newfoundland, Cluster, 5-8 oz. UB Crab, Dungeness, Cluster, Ocean Run

PRODUCT REVIEW

• Dungeness market strength is dependent on maintaining all market

segments:

• Live
• Fresh Whole Cooks
• Frozen Whole Cooks
• Frozen Sections
• Crabmeat

38

LIVE MARKET AND EXPORTS

• In months of lower volume, live buyers set prices because they can absorb a greater

percentage of the total landings; section and whole cook buyers have to compete

• In months of high volume, live buyers fill their orders but most of the catch goes to

processing – fresh whole cooks, frozen whole cooks, and sections. Demand for the

• ther products sets the market price
• In recent years, exports to China have expanded the demand for live products and

supported higher prices, but recently the volume and value of these exports has fallen.

57

TOTAL LIVE DUNGENESS EXPORTS TO CHINA

40

$- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 2010 2011 2012 2013 2014 2015 2016

Metric Tons

US and Canada Live Dungeness Exports to China

BC Exports to China us exports to china US Export Price

FRESH WHOLE COOKS

• Processors can sell fresh whole cooks to move volume, but not a very

profitable item

• Drip loss from cooking, labor add cost, but cannot sell for much more

than live price

• Product is mostly produced when there is need to run high volume

through plant with minimal labor

FROZEN SECTIONS AND WHOLE COOKS

• Dungeness section market is currently priced less than snow crab.
• When prices are competitive with snow crab Dungeness can expand

beyond west coast; when supply limited and prices are higher than snow crab it is a west coast only product.

• The expansion of sections to new markets this year will help stimulate

demand in 2018.

• Plants mostly produce sections and frozen whole cooks during higher

volume periods of the fishery

• In times of shortage, they may have to bid against live and fresh buyers

even when prices are high, so they buy to order only.

DUNGENESS SECTIONS AND WHOLE COOKS

43

sections Fzn whole cook Source: Urner Barry Comtell snow crab

CRABMEAT

• Dungeness crabmeat is important on the West Coast, and it helps

maintain the value of the fishery. Only a subset of packers can actually pick meat.

• Meat prices tend to be stable, even when section prices are more

volatile.

• So far major packers have been able to hang on to that market by

supporting some price stability.

• Meat market is one of main ways Dungeness can expand foodservice
• usage. Expanding meat demand helped sustain lobster prices.

CRAB SURPRISES

• Highest prices ever for Canadian snow crab
• Driven by product shortages; lack of crab from Alaska

reduction in NL

• Japanese became lead buyers
• High Prices Masked both Retail and Foodservice Lower

Usage

• Shortage pricing likely to continue with poor outlook in

2018

• Long term outlook for snow crab is a concern

2017 Snow Crab Season was Totally Unexpected Prices soared to record levels. Even the Big increase in Gulf Snow Crab did not have a moderating effect on the market. A recovery in Japan was the main driver for both the high price in Newfoundland and the Gulf. Long Term Outlook for Supply Getting Worse

NARRATIVE ISSUES

SNOW CRAB PRICES HAVE NEVER TRADED AT THIS LEVEL: $8.00 PER LB

$1.50 $2.50 $3.50 $4.50 $5.50 $6.50 $7.50 $8.50

25 year Price History for Snow Crab 2017

JAPAN TOOK 40% MORE CRAB FROM NEWFOUNDLAND IN 2017, DESPITE PRODUCTION FALLING 23%

5,000 10,000 15,000 20,000 25,000 30,000 10 20 30 40 50 60 70 80 90 2015 2016 2017

Metric Tons of Sections Percent of Pack

NL Snow Crab

Japan US Total Sections

Japan’s willingness to buy snow crab Set the market tone in 2017

SNOW CRAB SHORTAGES ARE LIKELY TO PERSIST

• Alaska TAC cut for 2018 to 18.9 Million lbs
• Signs Point to Better Recruitment in Alaska

in future years.

• Poor Survey Results for 2018 off

Newfoundland

• Expectations for Lower landings in Gulf
• Russian snow Crab has increased, but

Barents Sea Crab is not Coming to US

5000 10000 15000 20000 25000 30000 35000 2015 2016 2017 2018

Metric Tons

Alaska Opilio TAC

CUTBACKS IMPACTING US SNOW CRAB SUPPLY

10,000 20,000 30,000 40,000 50,000 60,000 70,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US snow crab supply fell in 2016, and will fall Again in 2017

Imports Alaska production

JAPANESE SUPPLY HAS STABILIZED AND MAY INCREASE SLIGHTLY IN 2017

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Metric Tons

Japan snow crab supply

Frozen Snow Crab Live

US IMPORTS OF BARENTS SEA SNOW CRAB DECLINED IN 2017

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000 2014 2015 2016 2017

Pounds

Snow Crab from Barents Sea Declined in First 8 Mos. of 2017

Russia Norway Lithuania China (mainland) Greenland Latvia

Snow crab

RED KING CRAB MARKET IS FALLING

• Fishing Price in Alaska Down

Substantially from $10.48/lb of 2016

• CIF Sales to Japan at $17.10
• US Prices $16.50 -$17.50 depending
• n cluster size (900 gm) FOB Seattle
• Inventories built in January and caused

Packers to be very cautious even with lower supply

52

NOT ALL CRAB PRICES ARE DECLINING

• Red King Crab smaller sizes are where prices have declined the most
• Snow Crab Prices have not declined, and because Japan took such a large share of

Canada Production, Prices not likely to change until new Season, when some inventory issues may become visible.

• Dungeness has been on a different cycle with prices for last two years well below peak of

$9.00 for clusters after 2014 supply shock.

53

PER CAPITA CONSUMPTION OF CRAB REMAINS IN NARROW BAND; CHANGED LITTLE IN 2016

Crab consumption is still 20% below its peak in 2006, 2007. With prices increasing, overall consumption will be declining

0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Pounds of Crab (all products) per capita

crab

DUNGENESS CRAB IS BETTER POSITIONED THAN OTHER TYPES OF CRAB THIS YEAR

DUNGENESS

• Usage Expanded due to Price Advantage

and availability

• Foodservice and Retail both expanded

usage

• Red Lobster Promoted Dungeness Crab

This Year

SNOW CRAB AND KING CRAB

• Supply decreasing
• King crab prices falling – partly on

pressure from Japanese

• Snow Crab Sales momentum is Slowing

in US, Strong Prices Due to Japan

• Little unsold crab in market

55

Conclusion: Dungeness is positioned well in relation to competitive products in 2018

DOMOIC ACID MARKET DISTORTIONS STILL A THREAT

• In recent years market has adjusted to later openings (January)
• If California delays opening Northern Areas due to Domoic Acid, it could affect whole

cook market.

• However, customers will seek crab from open areas
• Evisceration orders could lead major retail buyers to specify sections rather than whole

cooks.

• Any effects this year will be less than in prior years

56

SOME POSITIVES FOR DUNGENESS CRAB CONSUMPTION

• China continues to be an important live market
• With other products live trade opened up frozen interest as well.
• With Dungeness prices lower than snow crab buyers have strong motivation to substitute. Market

Relationship between snow crab and Dungeness should revert to a more normal pattern this year, but volume will determine how quickly this happens.

• A low volume year will quickly push Dungeness Prices higher than snow crab.
• For the second year the combination of higher landings and high prices led to record Oregon value for this

fishery.

• Last year we said ‘2016- 2017 could see another record for value with an increase in landings, and a relatively

small decline in price.’

• This year, higher prices are likely, and with decent volume a third record year is possible; lower volumes

however would put that out of reach.

57

OUTLOOK FOR 2018

• Volume is a wild card.
• There are lots of reasons for prices to rise. How much may depend on volume.
• If California opens normally this year that will stimulate demand.
• If volumes are significantly lower prices will be too high to continue attracting new

customers outside of the West Coast.

• If volumes are similar to last year, customers for Dungeness in other areas should be able

to absorb higher prices.

• Snow crab shortages are likely again in 2018.

58

WHAT COULD TRIGGER A SIGNIFICANT MOVE ON PRICE

CURRENT MARKET

• Market has Expanded
• Dungeness is trading well below the top of its

historical price range.

• A supply cutback could quickly push up pricing.
• Relationship between snow crab and Dungeness

could revert to its more normal value

• US demand for crab remains strong, with a

significant increase in per capita consumption

POTENTIAL TRIGGERS

• Lower than expected landings
• Volume Landings, but a More Pronounced

shortage of Snow crab

• US Buyers cutting back more than

expected due to high crab prices.

• Crab Market Strength Currently Depends
• n Japan and China

59

OVERALL OUTLOOK

• 2018 Looks positive from a market perspective in that prices for many species will continue

to be in the upper end of their historical range.

• But there are headwinds:
• Buyers have a delayed reaction to high prices. Some of the buying needs seen in 2017 will

disappear in 2018.

• Japan is becoming an important market again for some species, and is spending again.
• Geopolitical risks are much higher this year. If there is a calamity, like a trade confrontation
• r an incident with N. Korea business projections will go out the window

THANK YOU

TIME FOR QUESTIONS