December 20, 2019
Aquaculture Newsletter November - Focus_Abundant fish and lower aqua feed prices: Will ASF, Peruvian production and weather patterns break two decades of price inflation?
After two decades of shrinking fishmeal markets, stabilizing world supplies, rebounding Peruvian production is coinciding with falling Chinese demand. But even better news may lie ahead.
By Eric J. Brooks
An eFeedLink Hot Topic
For the first time since Peruvian output peaked in the 1990s, fishmeal prices have gone five years without setting a new price record. Moreover, we will go on record to say that fishmeal may be on the verge of large, historic –and completely unanticipated– price drop.
Over the last 20 years, fishmeal has shown much volatility amid and defied feed market trends to chart an exponentially increasing price level. From under $350/tonne in mid-1999 to US$2,400 tonne for top grades in the early 2010s. Averaging US$1,500/tonne from 2014 through mid-2019 and staying exceptionally flat near this level for most of the past two years, fishmeal has fallen 15% in five months.
FAQ 65% fishmeal is currently holding firm near US$1,300/tonne, roughly equalling the lowest prices after 2010. For two decades, a long-term decline in anchovy catches coincided with surging Chinese demand, pushing fishmeal to record levels. In the process, it turned from a conventional feed commodity to more of a widely used supplement.
Once mostly used in swine and poultry feed, fishmeal has mostly been used in aquaculture since the late 2000s, with most of livestock's smaller share accounted for by swine farming. Even so, big fishmeal customers like salmon farms have gone from using feed comprised of 55% to 70% fishmeal twenty years ago to around 10% today, with mostly enzyme fortified soymeal substituted in its place.
On the supply side, a long-term decline in Peruvian anchovy catches and world fishmeal output has finally bottomed out. From a peak of 7 million tonnes in the mid-1990s and peak Peruvian output of 2.3 million tonnes in 1999-2000, output collapsed by 35% to 40%, staying in the 4.2 million to 4.5 million tonne range for most of the years after 2010. Top exporter Peru endured a far steeper 65% to 70% production collapse, into the 0.6 to 0.7 million tonne range by the middle of this decade.
--But the collapse in Peruvian production seems to have finally stopped and partly reversed itself. Despite less than ideal ocean temperatures, the Peruvian anchovy catch jumped from 2 million tonnes in mid-decade to 3.06 million tonnes in 2017 and 5.31 million tonnes in 2018. This boosted fishmeal output from 730,000 tonnes in 2017 to 1.45 million tonnes last year.
This, in turn, enabled Peruvian fishmeal exports to rise from 644,000 tonnes in 2015-16 to a USDA estimated 972,000 tonnes in 2016-17 to 1.18 million tonnes in 2017-18.
With El Nino warm waters constraining anchovy stocks, this year's Peruvian catch will slump back to slightly over 3 million tonnes but both Peruvian fishmeal production and exports are expected to stay at over a million tonnes –and 50% above the lows seen in the middle of this decade. Going forward, 2020 is expected to see the ENSO cycle turn toward its cooler La Nina phase, which will further stimulate anchovy population growth and further boost fishmeal output.
Moreover, the upturn in Peruvian production coincided with the entrant of an important new player to the world fishmeal market. On one hand, unlike Peru, former number two exporter Chile has never had an output recovery. At 350,000 to 360,000 tonnes, Chilean fishmeal output remains more than 55% below its 800,000-tonne peak. With exports languishing at 210,000 to 220,000 tonnes, this is a shadow of the 500,000 to 700,000 tonnes it once supplied to the world market.
On the other hand, Vietnamese fishmeal production has shot up from slightly over 10,000 tonnes in 2000 to 269,000 tonnes in 2010 and a USDA estimated 470,000 tonnes in 2019. Exports have gone from zero in 2000 to 68,000 tonnes by 2010 and around 200,000 tonnes annually since 2015. Morocco similarly went from exporting no fishmeal in 2000 to 86,000 tonnes in 2010 and approximately 150,000 tonnes annually since 2015.
Moreover, both these nations are filling important market niches and offering far lower transport costs to nearby aquaculture producing nations. According to the FAO, "Viet Nam is gradually becoming an important supplier of fishmeal to Asian [shrimp producing] countries, given its clear geographical advantage and processing sector." Morocco is playing a similar supplier role to the aquaculture sectors of Mediterranean nations such as Israel and Greece.
With Vietnamese and Moroccan exports being substituted in place of lower Chilean shipments, they counterbalance a large part of the post-2000 decline in non-Peruvian fishmeal exports to the world market. After 2015, rising Peruvian output complemented the higher production of these new market entrants, causing fishmeal output to enjoy its first sustained production increase in nearly two decades.
These factors expanded fishmeal production from a low of 4.2 million tonnes in 2016 to 5.8 million tonnes in 2018. Going forward, warm El Nino weather is denting Peru's 2019 catch but not as much as it did in the past. At 5.1 million tonnes, it is far below its 7.0 million tonne peak but 21% below its secular low of three years ago. Moreover, as we shall see later, there is scope for world fishmeal output recovery to 6 million tonnes or higher.
Demand-wise, a catastrophic event has strongly dented demand for this protein meal. Reflecting decades of high prices caused by the collapse in Peruvian anchovy catches, world fishmeal imports fell 29.7% in fifteen years, from a USDA estimated 3.50 million tonnes in 2000-01 to 2.46 million tonnes in 2015-16.
–But while overall imports fell, those of China climbed from 0.6 million tonnes in the early 1990s to 1.3 million tonnes by 2008, before skyrocketing prices leveled them out near 1 million tonnes annually for several years after 2012.
Accounting for 40% of fishmeal imports and a majority of soybean imports (from which fishmeal substitute soymeal is made), Chinese fishmeal buyers inflated long-term aqua feed prices and now exert a considerable influence over the world aqua feed market.
Accounting for well over 50% of both world pork and aquaculture production, China buys up to half the world's imported fishmeal. Even before ASF impacted the quantity of fishmeal imported by China, 2018's poor aquaculture growing conditions caused its import to fall 7%, from 1.58 million tonnes in 2017 to 1.46 million tonnes last year. For 2019,
This year, African Swine Fever (ASF) will reduce Chinese hog herds by 30% to 50%, the volume of fishmeal used in swine feed demand has fallen by an amount several times greater than China's yearly increase in aqua feed production.
With China buying 40% of world fishmeal imports and over 80% of Peru's exports (which account for over 40% of world market supplies), this led to bloated Chinese fishmeal inventories and poor buying interest in the latter half of 2019. In an early December report, the FAO stated: "The stocks at Chinese ports are at sky-high levels and trade has been low." This, in turn, caused prices to fall by 15%.
Going forward, not even this new output or China's freeing up of supplies formerly destined for hogs will convince aqua feed makers to include as much fishmeal in their feeds as they did in the past. The 2.5 to 3.0 price ratio where the substitution of fishmeal for soymeal begins has not been touched since the late 2000s. Fishmeal has not traded consistently at a multiple lower than 3.0 to soymeal for more than two decades. This means that fishmeal could even to below US$1,000/tonne and its consumption stay relatively inelastic.
On the other hand, what is impressive about Peru's production recovery is that it occurred without deep or prolonged periods of La Nina's low coastal ocean temperatures. With Pacific Ocean currents trending strongly towards deeper, longer La Ninas in the early 2020s, this will further boost anchovy populations and ultimately, Peruvian fishmeal output.
At the same time, aquaculture is growing at only half the pace it did before while livestock demand for fishmeal has been flattened by China's ASF crisis. A combination of steady growth in eastern Pacific anchovy populations and flat, inelastic demand could cause an expected crash in fishmeal prices to well below US$1,000/tonne.
Should this occur and the fishmeal/soymeal price ratio fall below 3.0 for an extended time, many producers would seriously consider boosting their inclusion of fishmeal in aqua feed, reversing a two decade industry trend.
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