The outlook for groundfish: positive or very positive?
Rabobank International The outlook for groundfish: positive or very positive? Jeroen Leffelaar, Global Co-Head Animal Protein15 August 2012 1 Rabobank International
What’s on our minds: the Euro…… EUR/USD Exchange-rate and Net Speculative positionUnemployment anduncertainty areincreasinglyimpacting individualconsumers all overEuropeLow Euro may begood for Europe’soverall exportposition, it impactscost in the white fishindustryUS, NOK and Rubledenominated rawmaterial becomemore expensiveConsequentlyprocessing fish inChina is moreexpensive Source: Macbond 2012[Insert client name via master]
....but also the spike of agro-commodities Key Agro-commodities index 2000=100 500Currently we are closeto approaching levelsof the 2007/08 season 450 400Weather problems andrecord low stock levelshave created 350shortages of key agri-commodities 300Investors are quickly 250rushing intocommodity contractsfurther inflating spot 200prices 150 100 50 0 31-12-2004 31-12-2005 31-12-2006 31-12-2007 31-12-2008 31-12-2009 31-12-2010 31-12-2011 wheat corn soybean meal soybean oil Source: Bloomberg 2012 [Insert client name via master]
...to conclude: fish meal and fish oil back on the rise Fish meal and fish oil usd/mt 2500A lower TAC in Peruand strong demandfrom China for pig andaquaculture feed 2000Additionally thesalmon feed industryis running at fullcapacity 1500 1000 500 0 6.1.2005 6.1.2006 6.1.2007 6.1.2008 6.1.2009 6.1.2010 6.1.2011 6.1.2012 Fish oil,any orig,cif N.W.Eur Fishmeal, 64/65%, Bremen fca(h) Source: Oilworld 2012[Insert client name via master]
All protein species are facing their constraints. Groundfish may have a slightly different faith than othersMeat processors arefacing increasingresistance fromretailers to pass onthe feed higher cost Rising costOverall meat due to agroconsumption is commoditystagnant at best pricesCost are rising formany seafoodproducers,particularly for those Supplyin aqua culture increase impactingNon-Euro price levelsdenominated wildcatch may becomemore expensive butadditional supply Euro crisismay offset this impacting demand[Insert client name via master]
Salmon is experiencing one of the largest growth in supply everStrong supply fromNorway is Atlantic Salmon prices NOK/kg (left axis) and yearly global supply change (right axis)coinciding withChile recoveringfrom the ISA 50 18.0%outbreak 15.6% 12.3% 45 16.0% 14.0%Salmon prices are 40down to 25 Nok/kg 12.0% 35 yearly suppy changehaving been above40 NOK/kg in early2011 10.0% 30 6.7% Nok/kg 8.0%A 37% drop in price 25due to Norwegian 6.0%exports rising by 20more then 30% in 4.0%H1 2012 15 2.0% 10 0.0% 5 -2.0% -1.7% -1.37% 0 -4.0% 2008 2009 2010 2011 2012 Source: NOS Clearing 2012[Insert client name via master]
In the broad groundfish market we are witnessing gradual supply expansionThe groundfish Global groundfish productionsector across theworld is benefitingfrom years ofimprovingsustainability 8000And maybe ahelping hand from 7000global warming? RedfishBiomass is high and 6000 Cape hakestill increasing forkey species Pacific cod 5000 HokiMost of the industry Haddockis now MSC certified 4000and considered the North Pacific Hakebest managed wild 3000 South American Hakescatch industryglobally Saithe 2000 Atlantic Cod 1000 Alaska pollock 0 2006 2007 2008 2009 2010 2011E 2012E Source: Rabobank based on Groundfish forum and FAO data 2012[Insert client name via master]
Although Atlantic Cod production is growing somewhat faster Atlantic Cod productionAtlantic Cod isprobably the fastestexpanding groundfishspecies in terms of 1 400TAC Thousands 1 200Driven by Russia andNorway, TAC hasgrown on average by 1 0008.4% in the last fouryears 800Excellent biomass mayallow for a 15-20%expansion of the TAC 600in 2013 400If the additionalvolumes would beharvested will it 200create a price crash? - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E Norway Iceland Russia Denmark UK Spain Sweden Germany Canada Other Source: Rabobank based on Kontali data 2012[Insert client name via master]
….Probably no price crash, but some cod niche products may be impactedMost impactedproducts are thoseunique to cod suchas clip fish andsalted codThese already havehad a price declineThe bulk of theproducts which canbe seen as part ofthe broadergroundfish category(such a blocks andfillets) will be lessimpacted by theincreasing volumes Source: Kontali Cod Report 2012[Insert client name via master]
Groundfish products are primarily positioned in the “recession resistant zone”Products such as fishand chips, fish fingers, highsurimi and VAP frozenseafoods are typicallymore resilient torecessionary dynamicsAt retail levelgroundfish are Value positionstrongly representedin the frozen seafoodcategory – typically abetter performer inrecessionsAt food service levelgroundfish are moreexposed to QSR thenother seafoodproducts - alsopositive in recessionsNote on salmon: A Lowvery large part ofsalmon is sold freshand smoked – this isnot a market withmuch overlap with the Retail Foodservicemarkets of thegroundfish species Sales Channel Source: Rabobank 2012[Insert client name via master]
In addition market share can be won back from the farmed fresh water speciesPangasius is on thedecline in Europecaused by poorquality,sustainability issuesand poor image ofthe species. Thiswill be very hard toimprove.After years ofgrowth Tilapiaconsumption in theUS declined in 2011It is hard to imaginethat China willcontinue todominate the exportof Tilapia given itsinternal demand,increasing pressureon resources (land,feed, water)Long term: Eitherexports will declineor global tilapiaprices will increasesignificantly Source: Intrafish, Kontali Monthly Groundfish supplement 2012[Insert client name via master]
In the last 5 years groundfish has returned as the leading white fish source 14 Millions tonnesIn the 1990 thegroundfish industrywas declining as TAC 12had to be cut toensure long termsustainability. There 10was a growing, butvery small fresh waterwhite fish industry. 8Between 2002 and2008 while the 6groundfish supplystagnated pangasiusand tilapia expandedgreatly. At that time 4expectations werethat the market will be -0.5% p.a.dominated by farmed 2products.High commodity costs, 0declining image andproduction constraintshave greatly reducedthe growth rate ofwhite fish aquaculture Groundfish Fresh water white fishin the last 5 years. Atthe same time strong • Groundfish recoveringwild biomass has • Market declining • Fresh water species • Fresh water lowallowed for increasing • No fresh water species presence yet boomingcatches of groundfish growth Source: Rabobank based on FAO, Kontali and Groundfish form figures[Insert client name via master]
In the future China may become an important market for groundfish productsChina currently is agrowing consumerof surimi butotherwise not amarket forgroundfishVAP seafood andfrozen seafood cannot be sold at a wetmarketModern retail cansupply both a frozenand a fresh VAPseafood categorywhich in the westhas been the realmof the groundfishTraditional ChineseQSR has no breadedand batteredgroundfish fish.Rapidly expandingwestern fast foodchains could be aplatform for andexpansion of theseproduct[Insert client name via master]
Population growth and urbanization China’s cities will gain 182 million consumers in the next 10 years bringing the urban share to ~60% China’s population forecast in 2020 Current urbanization rate by province Source: United Nations, Rabobank Source: China Statistics Yearbook 2009 2020 57.5% 42.5% 1,431 mln Heilongjiang Jilin 2015 Xinjiang Beijing Liaoning 53.8% 46.2% Inner Mongolia 1,396 mln Tianjin Hebei Ningxia Shanxi Shandong Qinghai 2010 Gansu Henan Jiangsu 47.3% 52.7% Shaanxi Shanghai 1,354 mln Tibet Hubei Anhui Sichuan Chongqing Zhejiang Jiangxi 2000 1,267 mln Guizhou Hunan Fujian 36.2% 63.8% Urbanization Rate <40% Guangxi Guangdong Yunnan Taiwan 40-50% 0 500 000 1 000 000 1 500 000 50-60% Urban Rural Hainan >60%[Insert client name via master]
China’s consumer channels are adopting Western model QSR and food retail dominate this change QSR revenues in China China’s supermarket growth Source: China Statistics Yearbook (Billion RMB) Source: Rabobank, Company data (Trillion RMB) 50 45.46 45 3.0 40.43 40 2.5 35 32.46 30 2.0 25 23.51 22.39 1.5 20 18.55 14.51 15 1.0 10 0.5 5 0 0.0 2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009[Insert client name via master]
Key takeaways Its a volatile environment in Europe also impacting the seafood industry – Consumer spending in the EU under pressure – In general production costs are increasing while the end products price are falling (for example salmon and shrimp farmers world wide) – Groundfish sector may be exposed to increasing fuel cost and the consequences of movingLong term outlook exchange ratesgroundfish sector ispositive The groundfish sector is also experiencing increasing supply, but we do not believe a price crashA sustainable sector similar to that of salmon is likely to occurwith good biomass – Groundfish end products are largely found in recession resistant parts of the seafood marketPotential additionaldemand in emerging – Salmon is not a real competitormarkets – Competition with fresh water white fish is reducing. We do not believe that Pangasius and Tilapia will erode prices and continue to grow at historical levels in Europe or the USShort term demand – Key markets Spain and Portugal are holding up to date. Increasing demand from Brazilcould be impactedrather by worseningglobal economic Long term positive view on the sectorconditions andexchange rates than – Strong commitment to sustainable fishing has paid off with excellent biomass conditionsadditional quota – Also in the long run cost competiveness of Tilapia and Pangasisus is unlikely to improve versus the wild caught groundfish, therefore allowing groundfish to recapture market share – Potential additional demand for groundfish: Asia and China are largely unexplored markets for this industry Market penetration of modern retail and Western food consumption patterns may unlock significant opportunities for groundfish in Asia Increasing internal demand may limit export of competing white fish products from China[Insert client name via master]
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