State of the Seafood Industry Looking to 2021 John Sackton Seafood - - PowerPoint PPT Presentation

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State of the Seafood Industry Looking to 2021

John Sackton Seafood Datasearch Fisheries Council of Canada Ottawa October 2020

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Background

• 40+ Years in Seafood Industry
• Crab, shrimp, lobster and cod market

analyst since 1997

• Price and market outlooks for Atlantic

Canada, Alaska, and US West Coast

• 2005-2018 Price arbitrator for Alaska crab
• Expert on Mussel and Oyster Markets
• Co-Founder of NFI’s Global Seafood Market

Conference

• Annual Market Review for Fisheries Council
• f Canada
• Founder of Seafood.com News and

Seafood Datasearch

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Covid Disruption has replaced Trade War for Seafood Industry

• Last year we focused on trade issues, especially the

benefits to Canada of the US trade war with China.

• This year Canada’s Seafood Industry has been very

resilient in face of Covid-19

• Diversification of Markets in lobster has been key

driver

• However US remains largest market by volume
• US is on a knife edge, with potential for lower

purchases from Canada

• Foodservice and Retail Sales have seen major changes
• Our Market Review for Major Species will include

– Lobster – Snow Crab – Salmon – Cold Water Shrimp – Others: scallops, cod, mussels and oysters, etc.

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Review of this spring

• Early fears of harvest disruptions did

not materialize – Vessels able to fish – No widespread plant shutdowns

• Adaptation to foodservice shutdown

has been dramatic at both wholesale and consumer level leading to surge in retail seafood

• The US PPP program and federal

income support through July has been critical in maintaining consumer spending and company survival

• Canada managed to complete

spring crab and lobster seasons

• Seafood has been the food most

‘missed’ with restaurant shutdowns.

• Seafood Suppliers/Producers

received nearly $1 billion in PPP funds.

• Seafood demand, helped by

income support, has led to shortages and price spikes for some items

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Lobster and Crab had real growth in 2019

Source: Canadian customs data 500,000,000 1,000,000,000 1,500,000,000 2,000,000,000 2,500,000,000 lobster crab shrimp salmon (incl wild)

$CA

Major Seafood Export Commodities

2015 2016 2017 2018 2019 YTD 2019 YTD 2020

2019

Salmon and shrimp were slightly lower Comparing YTD July 2020 with YTD 2019, lobster and crab had lower value, but not shrimp and salmon

YTD Comparison 2019/20

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Canada is still heavily tied to US Market

More so in first half of 2020

Source: Intracen customs data

61% 63% 63% 60% 59% 59% 65%

0% 10% 20% 30% 40% 50% 60% 70% $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 2014 2015 2016 2017 2018 2019 2020

$CA 000’s

Total Canadian Seafood Exports

US China (incl vietnam, HK) EU Other Asia Other US percent China percent EU percent Other Asia percent Other percent

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US is dominant market for snow crab and fzn lobster; Less so for live lobster

Snow crab Live Lobster Fzn Lobster Fresh salmon

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Coldwater shrimp by Qtr

Shell on offshore Cooked and peeled

Q2 similar to 2019 Q2 far below 2019

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China is first major country to recover economically from pandemic

• China’s September

purchasing manager Index was 51.5, 60%Higher than the Consensus forecast

• China is the only

major economy expected to post GDP growth this year

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China has become Canada’s 2nd most important seafood partner

Despite improving diversification, Canada’s seafood industry still depends on US market, and this increased in 1st half 2020.

0% 10% 20% 30% 40% 50% 60% 70% 80% $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 E x p

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$USD 000’s

US China (Incl HK & Vietnam) Europe Japan Other Asia Other US Percent

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Canada is dominant exporter to china for lobster and fzn coldwater shrimp

Market share for major exports: Lobster 72% Fzn Lobster 100% Coldwater shrimp 45% Frozen Crabs 39% Live Crab (Dungeness) 15% Hake 55%

0% 20% 40% 60% 80% 100% 120% 200000 400000 600000 800000 1000000 1200000 L

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s t e r F z n C

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d w a t e r S h r i m p C r a b l i v e ( D u n g e n e s s ) C r a b F r

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e n T u r b

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& H a l i b u t H a k e O t h e r

$CA 000's

Snapshot of Canada's Exports to China in 2019

CA Exp China Imp Canada Market Share

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Questions for today

• Is impact of covid-19 different than other

seafood supply impacts in the last 10 years

• If so, what is the difference
• Are some markets for specific species

reacting differently than others

• What dynamic will drive sales in 2021

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Pandemic has hit different sectors unevenly

• 70% of US Seafood dollar

sales are at Foodservice

• Shut down of foodservice

sector has had huge impact

• But impact was initially

mitigated

• Next few months critical

in determining extent of long-term damage

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US restaurant performance lags Germany and Canada

• 80
• 60
• 40
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20 40 1

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Percent Change in Seated Diners Year over Year

Seated Diners Since August 1st

Canada Germany United States Linear (Canada) Linear (Germany) Linear (United States)

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15 Seafood Distribution is not out of the woods

$2.2 Billion in uncollected debt

Recent Congressional testimony from Slade Gorton:

• Lost 70% of their business
• Huge problem with bad debt;

restaurants can’t pay for what they ordered last spring

• Nationally $2.2 billion in bad

debt is overhanging seafood distributors

• Bank Lending secured by

inventory is freezing up as inventories get smaller

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Industry got reprieve from retail seafood

100 110 120 130 140 150 160 170 180 6 / 1 4 / 2 6 / 2 1 / 2 6 / 2 8 / 2 7 / 5 / 2 7 / 1 2 / 2 7 / 1 9 / 2 7 / 2 6 / 2 8 / 2 / 2 8 / 9 / 2 8 / 1 6 / 2 8 / 2 3 / 2 8 / 3 / 2

IRI Weekly Retail Data: Seafood, Meat, Deli Meat 100=no change YOY

deli Meat Meat Seafood

Seafood Deli Meat Meat

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Frozen category very strong at retail

100 105 110 115 120 125 130 135 6 / 1 4 / 2 6 / 2 1 / 2 6 / 2 8 / 2 7 / 5 / 2 7 / 1 2 / 2 7 / 1 9 / 2 7 / 2 6 / 2 8 / 2 / 2 8 / 9 / 2 8 / 1 6 / 2 8 / 2 3 / 2 8 / 3 / 2

IRI Weekly Retail Data: Frozen, General Food, Refrigerated 100=no change YOY

Frozen General Food Refrigerated

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Three trends helping seafood consumption

• Big Increase in home

cooking

• Big increase in use of

frozen food

• Continued emphasis
• n health during

pandemic

Data from informal survey of changes in seafood consumption by SeafoodNews

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Survey shows increased retail buying, buying from home delivery service

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US small business revenue makes up 45% of GDP: it has not recovered

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Restaurant traffic recovery is stalling as summer ends

• 100
• 80
• 60
• 40
• 20

20 1-Jun 8-Jun 15-Jun 22-Jun 29-Jun 6-Jul 13-Jul 20-Jul 27-Jul 3-Aug 10-Aug 17-Aug 24-Aug 31-Aug 7-Sep 14-Sep 21-Sep

Open Table Restaurant visits

US Caanda 5 per. Mov. Avg. (US) 5 per. Mov. Avg. (Caanda)

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Spending growth stalled as stimulus programs ended

Consumer spending stalls Personal income falls

• 10.00
• 5.00

0.00 5.00 10.00 15.00 20.00 Jan. Feb. March April r May r June r July r

• Aug. p

Monthly Change in Personal Income

Change in real disposable income

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Economic factors are key risk for fall and first half of next year

• The US economy remains on a

knife edge, with a serious risk of extreme disruption from a contested election.

• Consumer confidence and

spending will rebound or contract based on election results.

• Moody’s and other analysis says

that a Biden win and a democratic senate would provide a huge boost to the Economy.

• 18.6 million jobs projected over 4

years

• unemployment of just over 4%,

by the second half of 2022

• average household’s real after-

tax income increases by approximately $4,800

Beginning of recovery boosted

• ptimism for seafood

distributors With recovery stalled, risk is now that temporary loss of restaurant and foodservice business may become permanent Changes in seafood buying patterns helped by maintenance

• f income levels – which now is

at risk

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We are not out of the woods

• Looking only at strong fish

price data suggests a normal recovery

• But huge debt burden

could derail purchasing if it is not addressed

• Summer recovery based
• n stimulus
• In August personal

income fell after improving in June and July

• Without new stimulus fall

and winter could be bleak

• 25% of US restaurants

expected to close

• Virus surge is also causing

instability and low traffic for those that remain open

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Diversification in export markets away from US remains key for Canadian Seafood

• Many specialty export markets already

exist for shrimp, turbot, yellowtail etc.

• For live lobster, Chinese volumes impact

US price, even while Chinese export price remains constant.

• European markets and Korea still are

developing, but at much lower volumes

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China’s demand is key for lobster pricing, even in US

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 1 1 / 1 / 1 8 1 2 / 1 / 1 8 1 / 1 / 1 9 2 / 1 / 1 9 3 / 1 / 1 9 4 / 1 / 1 9 5 / 1 / 1 9 6 / 1 / 1 9 7 / 1 / 1 9 8 / 1 / 1 9 9 / 1 / 1 9 1 / 1 / 1 9 1 1 / 1 / 1 9 1 2 / 1 / 1 9 1 / 1 / 2 2 / 1 / 2 3 / 1 / 2 4 / 1 / 2 5 / 1 / 2 6 / 1 / 2

Percent of total lobster exports $CA Kg

United States of America China United States of America China Korea, Republic of France Spain 3 per. Mov. Avg. (United States of America) 3 per. Mov. Avg. (China)

Periods of high volume in China, at stable prices, are followed by higher prices in US

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Recovery in smaller markets will help seafood exporters

• Besides China, recovery in Europe, Japan and

Korea will help exporters on the margin.

• However, except for China, these markets are

not large enough to offset the impact of the US.

• Salmon and crab are both much more

concentrated in the US market, leading to a different dynamic in price volatility.

• On salmon, both whole fish, fillets, and frozen

fillets go 99% to the US.

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Pandemic is likely to increase Canadian dependence on US market in short term

• Air capacity and

travel issues have distorted trade flows

• Asia cargo routes

have recovered more due to ecommerce boom

• Europe N.

America routes far down

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Species review

• Lobster
• Snow crab
• Shrimp
• Salmon
• Other

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Live lobster pricing

2019 2018 2017 2020

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Price of live lobster compared to fzn lobster tail

Vs 4 oz fzn lobster tail Live Lobster $US per Lb Fzn 4 oz lobster tail $US per Lb june june june june

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2020 Prices supported by lower landings

LFA landings trending down Canadian shipments to the US were down in 2nd qtr.

20000 40000 60000 80000 100000 120000 140000 160000 180000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019p

Lobster landings by region

NL QB Gulf Maritimes US

Widespread reports of lower landings in Maine

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Strong demand for frozen lobster has increased Canadian processor purchases from US

US lobster exports YTD July

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 Canada China HK 2018 2019 2020

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Lobster and Crab Mostly eaten in restaurants

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% Shrimp Salmon Crab Lobster Whitefish (cod, haddock, tilapia, catfish Swordfish Clams or Oysters Flounder restaurant home

Data from informal survey of changes in seafood consumption by SeafoodNews

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But crab and lobster had biggest retail sales gains

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Crab Lobster Shrimp Salmon

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Pandemic impacted live lobster buying

• Fear of lack of markets let to low prices in

Spring

• Heavy demand at retail seafood led to

more sales, especially on crab and lobster

• Frozen lobster saw increased interest

from foodservice that was open

• Heavy local tourism along the East Coast

supported outdoor dining for lobster

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Current situation

• Right now live prices are higher than

processors comfortable with

• Processors reluctant to raise prices, but

shortages and demand is pushing prices higher

• These trends could support strong

holiday sales for lobster if export markets in China and Europe are healthier than the US

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Snow crab is at historically high prices

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After an initial drop of 20% below prior year, prices recovered sharply

This is a success story, not a story

• f a missed pricing opportunity

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Retail performance of crab very strong in 2019

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Snow crab at foodservice

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Trend in Snow Crab usage

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 2015 2016 2017 2018 2019

US Snow Crab Imports and Price

volume Avg Price 5-8 NL 10000 20000 30000 40000 50000 60000 70000 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7

Metric tons

Snow Crab Imports (Live Crab to Japan converted to Fzn Sections)

Japan US

• US now dominant market
• Usage expands even at

higher prices

• Japanese usage is declining

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Recent prices are now above last year, but stable

Snow crab is oversold, leading to heavy demand for Russian imports

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US Snow crab supply increased in 2019

• 20000
• 10000

10000 20000 30000 40000 50000 60000 70000 80000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Metric Tons Section Wgt

US Snow Crab Supply

Alaska Canada Russia Norway Greenland/latvia Other US Exports

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YTD July 2020 shows surge in US snow crab imports from Canada and Russia

10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 2017 2018 2019 2020 Canada Russia Norway Greenland

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Snow crab outlook

• US demand remains very

strong, with high prices and product shortages likely until next spring

• Spring price adjustment will

depend on US economic situation

• Japanese usage will follow US

pricing, will not set the market

• Alaska outlook is for stability

rather than significant increase; no new survey this summer

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Salmon pricing has been volatile

• Salmon volumes at retail have

been strong, but impacted by transportation problems from Chile and Norway

• Canadian whole fish exports

have suffered due to the collapse of foodservice demand

• But Canadian market share

has increased

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The two price spikes since May were related to transport and production issues

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Canadian whole fish has gained market share from Norway, UK

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Whole fish pricing declined more than fillet pricing

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Outlook for salmon

• Fresh whole fish mostly used in

foodservice, is still under pressure with light demand

• Trucker strike in Chile pushed

markets up at end of August

• Now Northeast whole fish is

trading above its three year averages, and seasonally this is a period of increasing prices.

• Air cargo space continues to be a

problem for European shippers, with European imports now the lowest since 2016.

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Both UK and Danish prices down

• n coldwater shrimp

UK 100-150 / GBP DK 175-275 / DKK

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US prices down also

• West Coast shore

prices average $0.50 per lb

• Canadian summer

prices are $CA 1.08 landed at plant

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Coldwater shrimp hit by lack of foodservice sales

• UK and US prices all

hit by lack of foodservice sales.

• Continuation of trend
• f lower prices that

predates pandemic

Iceland double fzn to UK

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Brexit is now posing new risk of disruption in shrimp market

• A no-deal Brexit would remove the UK

from the CETA

• Tariffs could snap back to WTO levels

until some new agreement is reached between Canada and the UK

• Economic impacts of no deal Brexit on

top of Covid may keep the UK in a period

• f economic decline.

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In general, fresh fish markets have been hit more than frozen

• Canadian halibut is

experiencing lower fresh fish demand

• Where supplies have

been reduced prices have held up better

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 500,000 1,000,000 1,500,000 2,000,000 2,500,000 J a n u a r y F e b r u a r y M a r c h A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r O c t

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Scallop prices responding to cutback in supply

• 2020 fishing year

will result in a 17% reduction in US landings

• Pace of actual

landings and imports has been lower due to fears of low prices

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Low prices at start of new fishing season have recovered on low volumes

CA 10-20 IQF US domestic 10-20 dry and all natural

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Haddock

Haddock whole fish volumes not significant in spring Fresh fillet volumes down significantly

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 J a n u a r y F e b r u a r y M a r c h A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r O c t

• b

e r N

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e m b e r D e c e m b e r 2018 2019 2020 $/lb $/lb $/lb $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 J a n u a r y F e b r u a r y M a r c h A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r O c t

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Oyster pricing is not changed, but volume has collapsed

• YTD farmed oyster

volume to the US is down 45%

$2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 100,000 200,000 300,000 400,000 500,000 600,000 700,000 J a n u a r y F e b r u a r y M a r c h A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r O c t

• b

e r N

• v

e m b e r D e c e m b e r 2018 2019 2020 $/lb $/lb $/lb

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Frozen redfish fillet prices have held up well, with lower volumes

$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 50,000 100,000 150,000 200,000 250,000 January February March April May June July August September October November December 2018 2019 2020 $/lb $/lb $/lb

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Holiday and Lent outlook

Favorable

• Many species have seen

price recovery as supply cutbacks balance demand

• Seafood consumption

trends continue to be favorable

• Trends in crab and lobster

indicate strength for the holidays

• Chinese export market

should be strong Unfavorable

• The US is in a period of

extreme uncertainty because of the election and unknown economic response.

• Failure to control Covid-19

could lead to serious downturn over the winter.

• Any increases in seafood

supply likely to put downward pressure on prices

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LFA 34 Lobster Season is key

• Generally major price changes occur

when new supplies are available

• Shortage of lobsters in Maine is

supporting current pricing.

• If LFA season is slow, prices will go

higher.

• Significant world-wide demand for

lobster should absorb heavy landings

• This is the primary reason for optimism

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Snow Crab demand is now a cultural phenomenon in the US

• Snow crab consumption has become a cultural

phenomenon in the US

• The extreme popularity of crab, plus the easy

availability at retail, has made snow crab an iconic food in parts of the US.

• This cultural propensity is the same phenomenon

that drives high value seafood products in Asia

• Unless there is a very serious economic collapse,

there is no reason to think snow crab is going to fall out of its current trading range

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Salmon offerings continue to be disrupted, providing Canadian opportunity

• Air transport problems will not be solved

quickly, leading to a longer-term advantage for Canadian fresh salmon producers

• Foodservice weakness and the possibility of

debts paralyzing seafood distribution is a risk, as the Canadian industry is heavily foodservice oriented

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To answer our original question: the pandemic is not a unique disruptor

The seafood industry has continuously existed within a framework of supply uncertainty and trade disruption In March of this year, not knowing what to expect, it appeared possible that the industry could not operate at all. Six months later, the disruptions are species specific, and some species have seen increases in value.

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Canada will continue to depend on the US Market

• The current crisis in the US

remains a very big threat

• Competent government has the

tools to address both health and economic issues.

• If US authoritarian corruption

truly takes hold, Canada will have a significant problem on its southern border and cannot continue to rely on the US as a stable trade and market partner.

• This problem, obviously, would

be bigger than just the seafood industry.

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Thank You

• Time for Questions