March 30, 2021
 
COVID-19 postpones an impending shrimp market rally
  
The coronavirus derails a new market cycle but output, consumption fell far less than initially feared. Latin America boomed, Asia stagnated amid signs of growing pent up demand.
 
By Eric J. Brooks

An eFeedLink Hot Topic
 
 
 
Contrary to expectations of a 15% to 20% output drop, world production of farmed Pacific whiteleg and black tiger shrimp held up far better than was expected. At the January 2021 Undercurrent News shrimp webinar, Robins P. McIntosh, CP's vice-president for shrimp farming operations estimates output fell only 8.5%, from 2019's 3.705 million tonnes to 3.39 million tonnes (including 225,000 tonnes of black tiger shrimp) in 2020. The production fall was minimized because COVID-19 notwithstanding, shrimp farming has long been held back by disease-based supply-side constraints.
 
Following a six-year market slump, shrimp prices were embarking on a long-awaited price rally in early 2020 when a succession of COVID-19 lockdowns aborted the cyclical upswing. On the most conservative assumptions, without COVID19, 2020 shrimp prices should have averaged US$8.50/kg to US$9.00/kg. Instead, coronavirus lockdowns destroyed demand, pushing prices down 16% to 24% below early 2020 levels –and those January 2020 "peaks" were themselves 26% below shrimp's 2014 record highs.
 
Falling importer demand interacted with COVID-19 disrupted supply chain logistics. With supply falling almost as much as demand, lockdown-induced price deflation was partly mitigated. With prices falling to their lowest levels since 2010 and feed prices much higher, returns suffered.
 
Even so, deflation alternated with aggressive but short-lived price and demand recoveries whenever COVID-19 restrictions were limited –only for deflation to return when "second" or "third" wave lockdowns were re-introduced. The resulting uncertainty made producers reluctant to expand quickly, and this ironically provides a certain degree of price support.
 
While COVID-19 induced demand drops and low prices held back production, supply-side woes held back shrimp farming for almost ten years before the coronavirus came along. Due to a debilitating succession of animal disease outbreaks, world shrimp output only grew 3.3% annually from 2010-19 inclusive, far less than the 8.2% expansion rate of the 2000s. At the start of the previous decade, Chinese and Thai output fell by 50% and never recovered.
 
The decade ended with India having increasing difficulty controlling shrimp diseases and boosting stocking densities. The 2020s started even worse, with the COVID-19 pandemic causing the biggest ever yearly output fall in farmed shrimp supply and demand.
 
Output fell by a record 8.5%, from 2019's 3.705 million tonnes to 3.390 million tonnes, with Asian producers accounting for almost the entire output decline. Even so, shrimp's performance exceeded even the most optimistic mid-2020 forecasts, which anticipated a much steeper 15% to 25% production decline.
 
From a demand perspective, the bad news is that no one knows when COVID-19 will be brought under control. From a supply perspective, no one knows when if leading Asian producers including China, Thailand, and possibly India will find a means of controlling disease outbreaks and resuming sustainable output growth.
 
The good news is that when COVID-19 ends, the remainder of the decade should be a prosperous one for shrimp farmers. The only certainty is that by postponing a market upturn, COVID-19 is creating a growing quantity of pent-up demand for shrimp. This implies that eventually, prices will rise by enough to justify the risk of investing in higher stocking densities in India and other Asian nations.
 
Going forward, with Asian lockdowns mostly over and transport logistics restored, CP's McIntosh projects a healthy 2021 expansion of 8.8%. Totaling 3.69 million tonnes, 2021 output will almost equal its 2019 peak.
 
Going forward, the attached chart's technical analysis strongly implies that shrimp was ready to enter a phase of high prices and returns when COVID-19 hit. On one hand, ongoing "third wave" European lockdowns could extend shrimp's price slump indefinitely, especially if the US also locks down again. On the other hand, shrimp's buoyant price rebound every time lockdowns are lifted show that there is plenty of pent-up demand.
 
This implies that once COVID-19 is brought under control, prices will go rise by 10% to 20% annually for several years. That would boost returns and allow output to expand on average by 4% to 5% annually from 2022 onwards.
 


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