El Nino off Peru and Chilean Earthquake Push Fishmeal to Record High
Analysis by: Gary Drimmer President, Drimmer & Associates International Gary Drimmer consults through Gerson Lehrman Group (GLG)
Analysis of: Fishmeal prices at all-time high after supply squeeze, by Naomi Mapstone and Javier Blas, April 26 2010 Financial Times (Read original article)
Fishmeal prices have surged in the past year to a record high of $1937 a metric ton, or over 85% in the last year, impacting aquaculture and piglet feeds around the world. The increase in fishmeal prices also supports the price of soybean meal and corn gluten meal.
Analysis
Fishmeal prices have jumped up to record highs while sugar has surged and declined and only cocoa has kept pace reaching multi-year highs. The jump is due in part from a potential reduction in the fishing quota in Peru this year due to a strong El Nino since the end of last. Peru is the largest fishmeal producer in the world, followed by Chile. It represents around 30% of world production and 45% of world trade in fishmeal. The situation in Chile is worse, thanks to the devastating earthquake that was centered on the coast near Concepcion, which greatly impacted the fishmeal industry. Chile is a major aquaculture producer, and is just recovering from a major disease (ISA) that impacted salmon farms. The FAO says that first estimates are a shortfall of 200,000 metric tons which will reduce exports from Chile and increase demand from Peru.
China remains by far the largest importer of Peruvian fishmeal importing around 50% of Peru's exports. China finds itself with very low inventories. China is the largest aquaculture and hog producer in the world, and uses fishmeal in both of these sectors diets. Other major importers of fishmeal from Peru are Germany, Japan and Taiwan with Viet Nam growing quickly.
These higher prices for fishmeal have been pushing salmon and trout feed producers such as Nutreco to continually push for the replacement of fishmeal with soybean meal and corn gluten meal. While total fishmeal consumption is small compared to global soybean meal supplies, the jump in fishmeal prices are one of the factors supporting soybean meal prices and crushing margins as well as firm corn gluten meal prices. This has a favorable impact for the major soybean crushers and wet corn millers such as Cargill, Bunge Ltd., ADM, Dreyfus, Corn Products International and Tate & Lyle. On the other side, higher fishmeal prices will limit major salmon producers rising profits from demand pull and supply push. The major players in the Norwegian salmon farming industry are Marine Harvest, Cermaq, Leroy Seafood and Austevoll.
While El Nino is expected to end in the next month or two, the impact on the small fish biomass in Peru has already occurred. Peru has learned over the years to carefully manage their fishing to avoid a depletion of this major resource as occurred back in the 1970's. Expect fishmeal prices to climb some more on any major cutback on Peruvian quotas this year, with prices declining at the end of the year and into next year.
