August 7, 2013, 5:50 pm
Jeanine Stewart

US tilapia buyers are hungry for product amid prices that are currently up 22% over last year by US supply giant Slade Gorton’s count.
Three to five ounce fillets are selling for $2.20 to $2.30, which is the same as 7 to 9 ounce fillets at this time last year and well above the price of $1.83 last year and $1.75 in 2011, Bill Feltch, director of strategic sourcing for Slade Gorton, told Undercurrent News.

This comes due to a supply deficit in China, where production is down 30% so far this year over last year. This has impacted the US industry dramatically, considering China is the go-to source of tilapia in the US. Last year, China supplied 80% of the tilapia supply imported into the US market.

“China’s in the driver’s seat,” another source in the industry said. Ex-farm prices provided by Siam Canadian China to Undercurrent News, based on prices provided to the company by various factories, show prices have been trending upwards since 2012 and this year, although levels are still not as high as in 2011 (see graph further down).

US buyers appear to have been securing product for later in the year in case a shortage occurs over the past two months.

“I haven’t seen customer demand faltering at all – if anything, there’s been a buying frenzy for the past thirty to 60 days,” Feltch said. “We had unprecedented sales last month. On some sizes, [sales volume] doubled over the previous six month average.”

The surge applies to both retail and foodservice, Feltch said. Buyers were low on tilapia inventory in early July, another source in the industry told Undercurrent. While his company was not buying aggressively at that time, it appears buying picked up during July for most.

“We definitely have a tighter market this year,” Don Kelley, procurement manager for Western Edge Seafood, told Undercurrent, comparing this year to last year.

The supply problem is particularly tough for large sizes.

“There’s a dramatic shortage of 7 to 9 ounce fillets,” Feltch said. “It’s an enormous problem. The bulk of the sale is typically 5 to 7 ounce fillets, but there’s still a customer base that likes a 7 to 9 ounce fillet, and all of the factories are barely producing 10% of the seven to nines that are needed.”

Yet there is no push to switch to other species, said Kelley and Feltch, and some companies are willing to trade down in size in order to get product.

As Slade Gorton sees demand return to normal levels, Feltch expects August to be about on par with the average in terms of demand, as prices remain high.

Perfect storm riles up market

There are “a lot of things” that caused production in China to drop 30% from last year this year: “The fact that farmers made absolutely no money in 2011 and 2012,” Feltch said.

Profit margins were squeezed out of existence when prices went down at the same time that the cost of feed rocketed from $600 in 2011 to a range of $1400 to $1500 in 2012.

Despite these rising costs, prices on tilapia in 2012 dropped due to a “tremendous amount of inventory” in China at the end of the 2011 season, Feltch said. Going into 2012, exporters had to lower the cost in order to get product to move.

In addition to farmers lack of incentive – and perhaps funding – to restock their ponds, this spring’s cold and rainy weather conditions caused fish to grow slowly, causing the current dearth of large sizes.

On top of these sector-specific factors comes the general protein supply in China, which is under pressure due to a virus outbreak in the poultry and swine industries, said Kelley.

Source: Undercurrent News’ prices portal. Ex-farm prices for whole, live tilapia, China, 500-800 grams, based on weekly prices provided by various factories to Siam Canadian China. Forward-looking prices reflect predictions similarly provided by Siam Canadian China. Prices until November 2012 were based on data from http://lf.bbwfish.com.

Will prices drop?

Both Kelley and Feltch, who have multiple decades of experience between them, do not expect prices to come down any time soon.

“We’re probably in a two year high right now as far as pricing,” Kelley, who has 28 years of experience in seafood, said.

Feltch is a bit softer on his position, but he too said prices will not improve right away. As for the outlook for the fall, he says it is contingent on production.

“It all just depends on how much fish comes out of the water in September, October and November,” he said. If prices go up at all, “it’ll happen in November and December, when the farmers and factories realize we better artificially lower value to drive volume in the states.”

When casting a view at the long term picture, Feltch sees prices coming down.

“If the tilapia industry wants to keep the volume in the US healthy, they will have to,” he said. They certainly can’t keep going up, he said. “A $2.75 a pound tilapia is not a value, and tilapia is a value fish.”

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