FEED Business Worldwide - April, 2012

 

Fishmeal supplies to top out, prices to bottom out 

 

by Eric J. BROOKS

 

 

After setting a price record near US$2,000/tonne, the past two years have seen fishmeal prices soften to near the average US$1,300/tonne seen today. This however, was due more to a supply-side bounty than any drastic fall in fishmeal demand. Going forward however, circumstances favour a topping out of Peru's anchovy population, and this implies that prices are bottoming out.

 

To appreciate why this is the case, we need to review what created today's supply situation: For most of the 2000s, Peru's anchovy catch was in gradual decline. This was partly due to overfishing, partly due to a 30-year trend for El Niño warm water currents dominating South America's western coast. While the latter trend ended in 2007, along with earlier overfishing, it decimated anchovy catch numbers, making it impossible for world fishmeal supply to keep up with demand.

 

Catch numbers bottomed out in late 2009, when an unusually warm El Niño ocean current drove away a large proportion of the dwindling anchovy stocks. The disrupted feed stock supplies were subsequently followed by Chile's massive earthquake, which disrupted fishmeal production and a significant proportion of world exports –just as China's economy was recovering from its recession.

 

However, just as prices hit a record and shortages appeared insurmountable, a constellation of circumstances brought the market into a rough balance. First, although 2008 was the start of a 30-year trend of colder La Niña ocean currents dominating South America's coast line, we did not feel the impact of this trend until late 2010. Since then, we have experienced an unusual coincidence of two consecutive years La Niña cold currents.

 

An extended period of cold water off South America brought attracted anchovy fish, provided them nutrients and encouraged them to reproduce –and the latter was aided by tighter Peruvian fishing quotas in the late 2000s. As a result, the late 2000s declining anchovy catches were reversed by a subsequent population explosion of these fish.

 

This can be seen in the wild catch numbers for the world's top fishmeal producers and exporters: According to the International Fishmeal and Fish Oil Organization (IFFO), Peru's anchovy catch jumped by a whopping 66.6%. Chile's wild catch of species designated for conversion into fishmeal and fish oil jumped by a strong, but much more muted 13.8%. This reflected the actions of Chile's government, which slashed its jack mackerel quota from 2.3 million tonnes in 2010 to 0.28 tonnes last year. While the enduring cooler waters caused other fishmeal feedstock species to recover, such tight quotas on a few key species restrained the increase in its wild catch size.

 

Granted, northern European nations and South Africa saw their combined wild catches fall by a steep 20%. However, with Peru and Chile accounting for nearly 80% of top producer's wild catch (and Peru singlehandedly supplying 54% of this total), a spectacular recovery in Peruvian anchovy catches boosted top 5 producers' catch of fishmeal-making species by 24%.

 

Fishmeal production roughly tracked the uptrend in wild catch: Peru increased its production by 61.5% and Chile by 11.8%. While not a top exporter, the United States accounts for approximately 10.7% of world fishmeal output. Recovering from the previous year's catastrophic Gulf of Mexico oil spill, America's own fishmeal production rebounded by 33.4%, thereby freeing up imports for other countries. On the whole, while the wild catches increased 24%, fishmeal production increased 25%.

 

All this coincided with a late Spring thaw in China, which hindered aquaculture production in a country which absorbs over half of world fishmeal exports.