Explaining the shrimp market, part 1: A build-up to supply shock
Soft-Shell shrimp by CP Foods, displayed at Thaifex 2015
Angel Rubio, Seafood.com News
Following is the first in a five part series written by Urner Barry's chief market analyst Angel Rubio that will take an in-depth look at the wholesale shrimp complex in the United States and abroad. This analysis will break down overseas production, import, price and other industry trends and how they have contributed to the current state of US spot shrimp market in 2015.
Today's post focuses on the 2012-2013 supply shock that served as a catalyst to record high prices:
Let’s take a look at the build-up before the market supply shock of 2012-2013, when the prices rose dramatically, in order to understand where we are at now.
1. First and foremost, Thailand had been the largest exporter—not producer—of shrimp in the world until 2012. Its production had been declining over the previous year, but not as dramatic as when market prices spiked in 2013.
2. Rumors were definitely circulating about a potential fall-out in production from Thailand due to early mortality syndrome (EMS) which would undoubtedly impact the market at least in the short term.
Just looking at production figures for white shrimp (whiteleg, paneus shrimps nei), actually showed an increase in global production of white shrimp.
However, the world’s largest exporter, or supplier of shrimp in the world saw its production collapse by 47% from 2012 to 2013, from 589,000 metric tons (in 2012 the 2nd largest producer after China) to 312,000t in 2013.
When removing the largest supplier—exporter—of shrimp in the world, we end up with many shrimp buyers—countries—with a shortage of supply.
China, meanwhile, remained steady at 1.54 million metric tons.
Production in Mexico also suffered from EMS (data does not show a decrease as harvest take place at the end of 2013 into 2014).
Two things happened here:
Buyers of Thai shrimp around the world, particularly the US, had to look elsewhere to source product, which disrupts established distribution channels. (Supply and demand curves shift due to a supply shock—see IS-LM/AS-AD model on supply shocks).
China, seeing its production stalled, in addition to seeing incomes rise significantly over the last few years, began bidding for the remainder of the product along with the other large market, Europe.
In addition, it must be noted that production in other countries rose, like Ecuador, Indonesia, Vietnam, and India.
So, a shortfall in Thailand of 281,000t was offset by:
An increase of 137,000t from Indonesia—an increase of nearly 57% from 239,000t in 2012, to 376 thousand metric tons in 2013.
Vietnam saw an increase of 126,000t, from 130,000t to 256,000t.
India continued its transition from black tiger to white shrimp, ramping up production of the latter from 136,000t to 211,0001 or 75,000t, an equivalent of 55%.
Ecuador’s production also increased by 23,000t from 281,000t to 304,000t.
However, going into 2014, and assuming that 71% of the country’s total production is exported—taking the average of the previous two years), we saw that in 2014, Ecuador’s production grew by 28%.
In other words: this situation, in the short term, caused strong bidding around the world from:
- Europe
- United States
- And of similar size in a matter of years, China
This can be easily illustrated with the amount of exports of Ecuadorean shrimp to its three largest markets over the course of the last few years—especially from 2013 going into 2014.
Ecuadorean exports to China went from holding a market share of less than 10% in 2012, to becoming the main destination surpassing the US and Europe in 2014 and 2015.
So, as bidding occurred around the world, prices in 2013 (simply taking value/production) rose significantly from the remaining producers: India, Ecuador, and whatever was left from Thailand.
Summarizing in the short term, Thailand’s shortage caused demand curves in other markets to shift outward—or become stronger—as traditional buyers bid for product in other markets; as a result, global shrimp prices rose.
So, for India, this was the ideal situation: as production of white shrimp increased, prices rose dramatically, supporting more incentive to switch from black tiger production to white shrimp.
Beyond this point, we will bring the focus to the US market.
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