AQUACULTURE OUTLOOK October 2, 1998 October 1998, LDP-AQS-8 Approved by the World Agricultural Outlook Board ------------------------------------------------------------------------------- AQUACULTURE OUTLOOK, a supplement to the LIVESTOCK, DAIRY, and POULTRY series, is published twice a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. Subscriptions to the printed version of this report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock # LDP-AQS, $21/year. ERS-NASS accepts MasterCard and Visa. ------------------------------------------------------------------------------- U.S. Aquaculture Production Higher, Faces Strong Foreign and Domestic Competition Led primarily by catfish, U.S. aquacultural production continues to expand, but during the rest of 1998 and 1999 it will face strong competition from foreign aquacultural production, wild harvest seafood, and meat products, primarily pork and poultry. With uncertain economic conditions facing many countries, the United States and the European Union (EU) are the most viable markets for producers of aquaculture, seafood, and livestock products. Increasing competition in the U.S. market will be due to (1) slowing export demand for U.S. products; (2) increasing imports, because of their lower prices due to currency devaluations relative to the U.S. dollar; and (3) abundant supplies of pork and chicken at very competitive prices. With strong competition, prices for many aquacultural products are expected to be under pressure in late 1998 and 1999. However, the impact on aquaculture producers is expected to be moderated by a strong domestic demand and falling production costs. A strong U.S. economy is expected to boost away from home food demand as people travel and eat out more. The away-from-home market is especially important to demand, as a large percentage of seafood is consumed at restaurants. Even with possibly lower prices, producers are expected to be in a better financial position in 1999 as falling corn and soybean prices lead to substantially lower feed costs. Energy is another area where aquaculture producers are likely to see some cost reductions. Asian Economic Crisis Roils Seafood and Aquaculture Waters A number of Asian countries currently experiencing economic problems are major suppliers of seafood and aquaculture products. Other affected Asian countries are major buyers of these products both from Asian producers and other regions. In Thailand and Indonesia, farm-raised shrimp, tilapia, and other species, along with wild harvest shrimp, are major foreign exchange earners. In most cases, aquaculture industries have been developed almost exclusively with the idea that most production would be exported. For example, in 1997, Thailand and Indonesia exported $921 and $162 million worth of shrimp, respectively, to the United States. The export orientation of aquaculture in these countries is both a benefit and a disadvantage. On one hand, with most production destined for export, aquaculture producers in these countries have not had to deal with falling domestic demand due to recession and devalued currencies. On the other hand, while the demand for shrimp in the United States and the EU has remained strong, ongoing economic problems in Japan and slowing economic growth in China are likely to reduce exports to those markets. While farmed shrimp is probably the highest valued aquacultural product to be affected, the Asian economic crisis is also affecting other aquaculture markets. Japan has been, for a number of years, the world's largest seafood importer. Problems in the Japanese economy are affecting almost all sectors of the seafood and aquaculture industries. Japan is also the chief foreign market for U.S. wild harvest salmon and a significant importer of farmed salmon, especially from Chile. Declining Japanese salmon imports have forced more U.S. wild harvest salmon to be sold domestically and caused most farmed salmon producers to intensify their efforts to sell products in the United States. Japan and China are also major export markets for U.S. ornamental fish and mollusks. The changing economic conditions are expected to reduce import demand for these products and lower prices for competing products from Indonesia, Thailand, and Korea. Catfish Output and Revenue Expected To Reach Record Highs in 1998 Catfish sales to processors are expected to reach about 560 million pounds in 1998, 6-7 percent above the previous year. Through August, sales totaled 383 million pounds, 8 percent above a year earlier, but fourth-quarter sales are expected to be closer to a year ago. The price paid by processors to farmers is expected to be 4 to 5 percent higher in 1998 at around 74 cents a pound. With increases in total sales and the average price received, total gross revenues from farm-raised catfish are expected to reach a record $415 million in 1998. Catfish farmers have benefited in 1998 from falling feed costs, brought on by lower corn and soybean prices. Over the last 2 years, lower feed costs have greatly helped the bottom line for many catfish growers and this trend is expected to continue through at least the first half of 1999. The latest forecasts show 1998/99 corn prices averaging $1.80 - 2.20 per bushel, down considerably from 1997/98's $2.45. Soybean meal prices are forecast to average $125 - $140 per ton in 1998/99, down between $45 and $60 per ton from the previous year and almost 50 percent lower than 1996/97's $271. Catfish Output Expected To Expand Through 1999 In the July 1 NASS survey, catfish growers reported that their inventories of broodfish, foodsize fish, and fingerlings were all above the previous year. However, stocker inventories were lower. These inventory estimates are only for the four largest producing States (Mississippi, Alabama, Arkansas, and Louisiana). Inventory estimates for the other producing States are only reported as of January 1. As of July 1, 1998, the number of foodsize fish in inventory was estimated at 262 million, 13 percent more than a year earlier. Inventories in all three size classes were higher, and those for small and medium foodsize fish were up 13 percent. In both cases, most of the increase occurred in Mississippi. The fish that have reached foodsize as of July 1, are those that will be going to processing plants in the second half of 1998. While this will allow plants to continue to process a large number of fish in second-half 1998, the ready supply is expected to cause a gradual softening in prices paid to growers. Farm prices had rapidly increased at the end of first-quarter 1998 and the beginning of the second quarter, when a short-term shortage of foodsize fish developed. The reported changes in grower inventories of stockers and fingerlings on July 1 were in opposite directions. After falling in 1997, inventories of fingerlings rose 3 percent and were almost identical to those of July 1996. The number of fish in the stocker size class reported for July 1 has fallen 10 percent in each of the last 2 years. Normally, the July 1 inventory of stockers and fingerlings represents the fish that will be processed at the end of that year and for most of the first half of the next year. In the July 1, 1997, inventory report, stocker numbers were down 10 percent and fingerlings were 3 percent lower. This should have indicated that the number of foodsize fish available for processing would be down somewhat in first-half 1998. While there may have been some short-term supply shortages of foodsize fish, the increase in farm prices was also caused by the fact that processor use in January-August 1998 rose 8 percent from the previous year. Growers estimated that they had 1.6 billion fingerlings and 623 million stockers on hand as of July 1, 1998. These will supply the foodsize fish for the first half of 1999. However, even with an additional expansion in production in 1999, no more than 350 million fish would be needed to supply processing plants. With other livestock species the mortality rate between the beginning of growout and when they reach harvest size is only a few percent. For example, the average mortality for broilers in the growout phase is about 3 percent. With fish species, even in a farm setting, the loss is much higher. The falling or steady supply of stockers and fingerlings in the face of continued growth in processor volumes implies that growers have been successful in making some reductions in the mortality rates of their fish between when they are first placed in fingerling ponds and when they are harvested. Of course any decrease in the mortality rate will also improve the economic efficiency of the farming operation, with lower purchases of fingerlings and stockers, lower feed use, and other savings. Farm Prices Expected To Remain Stable in 1999 As long as the general forecast for the U.S. economy remains good, catfish prices in 1999 should remain in the mid- to low 70 cents a pound range, about the same as in 1998 and 1997, but a decrease from the high 70's seen from 1994 to 1996. A strong domestic economy will allow for expansion in restaurant and food service sales, which are a prime outlet for catfish. In the second half of 1998 and into 1999, catfish processors, however, will be faced with strong competition from pork producers as large production continues to keep prices low. Also, broiler processors will be lowering prices, especially as the large export market to Russia continues to be depressed. Other seafood species will also compete with catfish products as export markets for U.S. seafood products slow and imported seafood products become less expensive due to currency devaluations. Over the first 8 months of 1998, farm sales to processors totaled 383 million pounds, with an average price of 76 cents a pound. Over the second half of 1998, prices are expected to show some strength from late 1997 levels, but be lower than in first-half 1998, averaging around 72 to 73 cents a pound. Acreage Up, Pond Building Down In the July survey, growers reported that they had 164,600 acres currently in production, up marginally from a year earlier. Mississippi accounted for most of the increase as its area rose 2,300 acres. The acreage breakout is 136,600 acres used for the production of food size fish, 21,200 acres used for fingerling production, and 5,530 used for broodfish production. During the second half of 1998, growers reported that they anticipated that 6,650 acres of catfish ponds will be either being renovated or built. Processor Revenues Again at Record Highs Through August, processor sales were 193 million pounds, 8 percent higher than a year earlier. This is the fourth consecutive year that processor sales have risen. Processor sales are normally between 50 to 55 percent of grower sales to processing plants, with the bulk of sales (60 percent so far in 1998) being frozen products. Overall processor prices also rose during the first 8 months of 1998 to $2.42 a pound, up 2 percent from the same period in 1997. This follows 2 years when overall processor prices declined. With the increase in sales and higher prices, gross processor revenues through August 1998 totaled $466 million, up $40 million or 9 percent from January-August 1997. Both processor sales and average prices are expected to remain above a year earlier for the remainder of 1998. Based on a forecast 7-percent increase in sales to approximately 280 million pounds and a 2-percent increase in overall processor prices, processor revenues for 1998 are forecast at $640-$650 million. This would be up $50-$60 million from 1997 and would mean an increase every year so far in the 1990s. During the first two-thirds of 1998, processor sales have been strong in almost all categories. Sales of frozen whole fish have been below the previous year, but sales in the other categories all expanded with several growing at double-digit rates. As with much of the rest of the seafood industry, further growth in catfish sales is expected to come chiefly from either fillets or prepared products, as large chain restaurants or even smaller ones try to move some of the food preparation work to food processing companies where it can be done more cost effectively. Over the long term this has meant that a greater percentage of catfish sales are filleted products ready for cooking. In the first 8 months of 1998, sales of filleted products, fresh or frozen, represented 60 percent of total sales. Trout Sales Down Slightly The USDA's September trout report showed 1998 (September 1, 1997 to August 31, 1998) sales of trout products at $79 million, down 1 percent from the previous year. The decrease in total sales stem from falling sales for foodsize fish, stockers, and eggs, as the value of fingering sales increased. Sales of foodsize trout totaled $59.7 million, down 2 percent from 1997's $60.7 million. The decrease resulted from a smaller quantity of foodsize trout being sold, as the average price rose by 1 cent to $1.08 a pound. Sales of foodsize trout were lower in the four largest producing States (Idaho, North Carolina, Pennsylvania, and California). This is almost the exact opposite of 1997, when sales in Idaho, North Carolina, and California were all higher. Falling sales in the largest producing States were only partially offset by increased volumes in some of the smaller producing States. Idaho remains the dominant producer, accounting for almost three-quarters of the quantity of foodsize fish sold. In 1999, sales of foodsize trout are expected to again be close to 60 million pounds, with prices down slightly due to strong competition in the restaurant market from imported seafood species. After increasing strongly in 1996 and 1997, sales of stocker trout fell 17 percent in 1998 to $10.3 million. The decrease stemmed from both a lower quantity of sales, down 9 percent, and a decline in the average price, down 9 percent. The quantity of stockers sold fell in most of the Western States, but the two largest producers in the East, Pennsylvania and North Carolina, reported increased sales. The outlook for 1998 is mixed as sales of fingerlings rose strongly due to a very large increase in sales in California. On the other hand, sales of eggs were down for the second year in a row. Fingerling sales have been erratic over the last several years, with alternating strong increases and decreases. Exports of trout products fell in first-half 1998. Exports of live trout (eggs) declined 60 percent as sales to Asian countries completely disappeared. Sales to Canada were about the same as the previous year. Exports of fresh or frozen trout products totaled $1.3 million, up 8 percent, as increased shipments of fresh trout products, primarily to Canada, more than offset falling sales of frozen trout. Tilapia Imports Higher U.S. tilapia imports are expected to grow further in 1998 and are forecast to be higher in 1999. The strength of the dollar versus most other currencies is expected to encourage more imports from Asian countries such as Taiwan, Thailand, and Indonesia, but also greater shipments from Western Hemisphere producers such as Costa Rica, Ecuador, and Jamaica, as demand increases for filleted products. Domestic tilapia production is expected to increase, but will be restricted mostly to the live market, still the primary sales outlet for U.S. producers. U.S. tilapia imports in the first 6 months of 1998 were 20 percent higher than the previous year. Frozen whole tilapia continues to dominate imports, accounting for over three quarters of all shipments. Total imports were 29.9 million pounds, with whole fish at 22.9 million, fresh fillets at 4.0 million, and frozen fillets at 3.0 million pounds. Imports of tilapia were higher in all categories. Shipments from Taiwan have always dominated frozen whole imports, but over the last year Taiwan has also begun to export frozen fillets. In the first 6 months of 1998, Taiwan was the largest source of frozen tilapia fillets, ahead of Indonesia and Thailand. The value of tilapia imports in first-half 1998 increased only 3 percent to $25.4 million. The average prices fell in all three market categories, with frozen whole fish dropping below 50 cents a pound. Tilapia prices have fallen sharply over the last 2 years. In the first half of 1996, tilapia imports averaged $1.09 per pound. By first-half 1998, the average import value had declined to only $0.85 a pound. Given the current economic conditions, tilapia imports are expected to remain strong, on a quantity basis, for the remainder of 1998 and into 1999. However, prices are expected to remain close to their present lows due to the devaluation of a number of foreign currencies and strong competition from other seafood species and other protein sources such as pork and chicken. Canadian and Chilean Shipments Boost U.S. Salmon Imports U.S. imports of Atlantic salmon in first-half 1998 reached 104 million pounds and almost $250 million, up 38 and 39 percent respectively, from first-half 1997. All three Atlantic salmon import categories (fresh whole fish, frozen whole fish, and fresh and frozen fillets) showed increases, but the majority of the growth came from greater imports of fresh or frozen fillets from Chile. Imports of filleted products have more than doubled in each of the last 3 years and accounted for over 40 percent of the quantity of all Atlantic salmon imports in first-half 1998. Normally, imports in the first half of the year account for only about 40-45 percent of annual Atlantic salmon imports. If this holds true in 1998, Atlantic salmon imports are expected to reach between 230 and 240 million pounds and $550 and $600 million in value. The chief variable in this projection is the continued strength of the U.S. economy. A strong U.S. economy will keep the dollar strong against most other currencies and make imports relatively less expensive. It will also focus the selling efforts of most major Atlantic salmon producers, especially those in Canada and Chile, which depend heavily on sales to the U.S. market. Also, a strong economy will help restaurant sales, a prime outlet for salmon products. Although imports from Canada did not increase at the rate that Chilean imports did, Canada is still the largest salmon supplier to the United States. If there had been no changes in the Atlantic salmon market, Chile was expected to become the largest supplier in the second half of 1998 or in 1999. However, a number of new factors will be influencing the Atlantic salmon market over the second half of 1998 and into 1999. First, the International Trade Commission found that some Chilean producers had been dumping Atlantic salmon products in the U.S. market, and placed anti-dumping duties on Chilean producers. Second, the Canadian dollar has been declining versus the U.S. dollar, making Canadian salmon prices more competitive with Chilean products. Canada also enjoys an advantage in transportation costs. Third, the Japanese economy has faltered. Japan has traditionally been the world's largest market for salmon products, importing heavily from the United States (Alaska's wild harvest), and over the last several years a growing purchaser of farmed salmon from Chile and other sources. With exports of U.S. wild harvest salmon down, foreign aquacultural producers will have to compete with a larger percentage of the domestic wild salmon harvest being sold in the U.S. market. Shrimp Imports Up Strongly Over first-half 1998, U.S. shrimp imports were 305 million pounds, 53 million or 21 percent higher than in the first half of 1997. With prices even stronger than in 1997, the total value of imported shrimp grew 26 percent to $1.4 billion. With economic conditions expected to remain favorable over the remainder of 1998 and into 1999, shrimp imports are expected to reach record highs in terms of quantity and value. Higher imports will be fueled by a strong U.S. dollar and efforts by major Asian exporters with slumping domestic economies, to maximize their export earnings. Earlier fears that the economic crisis would interfere with production, do not seem to have materialized, especially in Thailand. Imports increased from most major suppliers. The exception was Indonesia where shipments were down slightly from the previous year. However, the value of Indonesian exports to the United States rose $3 million to $79 million. Ecuador and Thailand remained the largest suppliers with 25 and 33 percent of total shrimp imports, respectively. They are followed by Mexico and Indonesia with 10 and 6 percent. Two other major shrimp suppliers to the United States are India and Bangladesh. They are particularly important suppliers of large (under 48 shrimp per kilogram) shell-on frozen shrimp. In 1997, total shrimp imports from India were valued at $139 million, while imports from Bangladesh were valued at $132 million. Imports from Bangladesh are expected to fall sharply in second-half 1998 due to the severe flooding that has covered a large portion of that country. Production problems in Bangladesh could move prices for large shrimp upwards over the next several months, but retailers and restaurants can move to slightly smaller shrimp to meet their needs as supplies from other countries appear plentiful. The shrimp market was stronger, pretty much across the board, as first-half 1998 sales in each of the three major categories (frozen, fresh, and prepared) were all higher and unit prices were all above those of the previous year. With shrimp sales in the first half of a year normally accounting for about 40 percent of the annual total, imports in 1998 are estimated at 750-760 million pounds valued at $3.4-3.5 billion. This makes the value of shrimp imports about 25 to 30 percent larger than the forecast value for total U.S. poultry exports (broilers, turkeys, other chicken, eggs, and egg products). Prepared shrimp products continue to be the fastest growing portion of the shrimp importing business. In the first half of 1998, prepared shrimp imports totaled $166 million, 140 percent above first-half 1995. As long as the U.S. economy remains strong, imports of prepared shrimp for 1998 are expected to continue to expand beyond 1997's $375 million. Much of these products go into the restaurant trade to expand menu selection, while taking advantage of lower labor costs in producing countries by having the preparation work done there. Crawfish Exports Down, But Imports Rise Over the first half of 1998, U.S. crawfish imports totaled 865,000 pounds, up 47 percent from the same period in 1997. However, the average value of these imports was down 20 percent to $1.67 a pound. China remains the dominant supplier, but with a large tariff now in place on imports of frozen crawfish meat from China, shipments for 1998 are expected to be down somewhat from 1997 and considerably lower than in earlier years. U.S. exports of crawfish were reported at 1.7 million pounds in first-half 1998, only 30 percent of the 5.7 million pounds shipped the previous year. In most years, nearly all crawfish exports go to Sweden during the 4 months from May to August. Not only were export volumes down, but average export value was also lower, leaving the export value at $2.7 million in first-half 1998, down from $10.1 million a year earlier. There are two fundamental differences in crawfish production that separate it from the production of most other aquaculture species. First, crawfish growers rely on natural reproduction to maintain population levels in existing ponds. Second, they rely on the natural ecosystem of the pond to supply most of the food needed by the crawfish. These two factors do not allow crawfish growers to utilize selective breeding methods or to incorporate improvements in feeds and feeding strategies. In other segments of the aquaculture industry, improvements in breeding and feeds have generated some of the greatest productivity increases. With over 110,000 acres of ponds, Louisiana's crawfish industry probably has the most area devoted to any one aquaculture crop in the United States. However, with crawfish being only a seasonal crop and productivity low on a pound-per-acre basis, production during 1990 to 1997 has ranged from 44 to 61 million pounds, valued at $28 to $34 million. Along with the restrictions placed on crawfish due to its unique production methods, crawfish producers must contend with a highly variable wild crawfish harvest, and over the last several years, growing imports from China. Prawns in Kentucky While crawfish production in Louisiana has been relatively stable over the last several years, a small industry for the production of another shellfish species (freshwater prawns) has been developing. Trials for growing these large freshwater prawns -- native to Southeast Asia -- have shown promise. Water temperatures are too cold for the prawns to establish themselves permanently, but they can be placed in ponds for growout in the spring and harvested in the fall. Currently, production volumes are small and targeted towards niche markets at high-end restaurants. Oyster Exports Down, Mussel and Clam Exports Rise Over the first 6 months of 1998, U.S. shipments of oysters, mussels, and clams totaled 4.3 million pounds, 3 percent above first-half 1997. As the dollar has risen against most major currencies, the export forecast for U.S. mollusk exports has become decidedly less optimistic, but so far exports have been holding their own. Over the last several years, U.S. mollusk growers have had an expanding export market, especially in Asia. In 1998, Asia was an important market for both oysters and clams. Only a small amount of mussel exports went to Asia. Even with the Canadian dollar's fall in value relative to the U.S. dollar, Canada remains the largest single export market for U.S. mollusks. Shipments to Canada accounted for 48 percent of oyster exports, 57 percent of clams shipments, and 77 percent of mussel exports. Clam exports totaled 2.6 million pounds in first-half 1998, up 8 percent from the previous year, but on a value basis clam exports fell 8 percent to $4.2 million. Even with economic problems in Japan and unfavorable exchange rates with Canada, exports to these two markets expanded, offsetting very strong declines in exports to Hong Kong and China. Imports of Mussels, Clams and Oysters Increase All the factors working against U.S. mollusk exports have favored higher imports of mollusk products. Combined mussel, clam, and oyster imports in first-half 1998 were 23.5 million pounds, valued at $30.2 million. Only imported clams saw a decline in value. While the quantity of imported clams rose 12 percent, the value fell 17 percent. Mussels are the fastest growing U.S. mollusk import. In the first half of 1998 they totaled 1.5 million pounds, up 22 percent from 1997 and 180 percent above first-half 1994. Even with the large increase in volume, the average unit price has remained stable, with the import value rising 22 percent. Canada and New Zealand were the major suppliers. With continued economic growth forecast for the U.S. economy and especially with the favorable exchange rate with Canada, imports of most mollusk products and especially mussels are expected to expand over the second half of 1998 and into 1999. Surprisingly, scallop imports in first-half 1998 declined about 16 percent from a year earlier to 25 million pounds. The value of imports did not decline as much, but at $102 million it was 5 percent lower. With Canada the dominant supplier of live products and Japan and China the major suppliers of frozen or prepared scallops, the expectation would have been for higher volume in 1998 with possibly falling prices. Imports and Exports of Ornamental Fish Fall As long as the Asian economic crisis continues, U.S. ornamental fish producers will have to concentrate their sales efforts on the domestic market as exports are expected to remain depressed well into 1999. Consumers in traditional ornamental fish markets, such as Hong Kong and Japan, are expected to reduce expenditures for ornamental fish. This appears to have been the case in first-half 1998. The value of U.S. ornamental fish exports declined to $5.8 million, down 31 percent from 1997. Shipments to Japan, traditionally the largest U.S. market, fell more than 50 percent. This follows a decline of 33 percent the previous year. After remaining about the same in 1996 and 1997, exports to Hong Kong dropped precipitously in 1998. Shipments over the first 6 months of 1998 were valued at only $233,000, down over three-quarters from the same period in 1997. Imports of ornamental fish also declined in the first 6 months of 1998 compared to a year earlier. At $23.9 million, imports were down 8 percent from 1997 and 15 percent lower than in 1996. With currency devaluations making shipments from Asian countries relatively less expensive, it is surprising that imports have fallen in the last 2 years. Imports from Indonesia and the Philippines increased slightly, but not enough to offset the drop in imports from most other sources. Principal contributor: Dave Harvey 202-694-5177 END_OF_FILE