Industry Insight


Date October 2019

Projected Values - Seafood


Current Trends

  • The U.S.-China trade war continues to roil seafood markets
  • Rising global pork prices should be a positive for the seafood industry
  • North American seafood harvesting market conditions have been bolstered by strong to stable salmon, lobster, and scallop harvests and pricing, as well as continued positive trends related to overall demand for seafood
  • North American seafood distribution market conditions have been positive and growing, but the U.S. market has been heavily and negatively impacted by Section 301 tariffs


Ongoing trade war: Having gone on for 16 months, the U.S.-China trade war has started to have a heavy impact on a wide variety of U.S. industries, especially seafood markets. Whichever way this trade war plays out, as of October 14, 2019, three tranches of U.S. Section 301 tariffs have been implemented, affecting an estimated $250 billion of annual Chinese imports to the United States at a rate of 25 percent. The Chinese government implemented retaliatory tariffs affecting $110 billion in estimated annual imports at varying tariff rates of 10, 15, and 25 percent. Affected goods range widely, but U.S. seafood has been directly impacted. While seafood import levels were relatively steady through August 2019 (down 0.8 percent on a tonnage basis overall), U.S. exports fell overall by 5.5 percent year-to-date on a tonnage basis. Lobster exports alone were down by almost 35 percent on a year-to-date basis and almost 47 percent since the tariffs on lobster went into effect in July 2018, detrimentally impacting U.S. lobster processors.

The Trump administration announced a Phase 1 trade deal with China on October 11, 2019, to delay a tariff hike, boost Chinese agricultural purchases, and address foreign currency levels. The agreement was not set out in writing, only in principle. Almost immediately, investors grew concerned that the agreement would not lead to significantly lower trade barriers or greater certainty over China-United States trade relations. According to Bloomberg, China wants further discussions as soon as the end of October 2019 to smooth out details of the deal. As announced by the Trump administration, the Phase 1 deal commits China to buying $40 to $50 billion worth of American agricultural products annually, along with new currency controls, strengthened Chinese protections for American intellectual property, and more access to China’s market for financial services firms. In exchange the U.S. would commit to pausing further tariffs currently scheduled to be raised or implemented on October 15 and December 15, 2019.

Pork shortage may benefit seafood:The U.S. could see tight supplies of various pork products in 2020, due to the African Swine Fever epidemic that is forecast to kill 350 million hogs by the end 2019. While China’s hog crisis has not had much of an impact on the U.S. market yet, that could change in 2020, as China is forced to increase imports, which the Phase 1 tariff agreement could clear the way for in theory. The most recent hog slaughter price is up about 9.1 percent over last year’s levels. That pricing level comes even as China maintains its retaliatory tariffs against U.S. pork shipments. If the Chinese duties were lifted, American exports could increase, potentially leading to higher U.S. pork prices, and increasing pork prices could have a positive impact on the seafood market, as some level of pork demand could shift to seafood due to the elasticity of pricing in the food market.

Mixed harvest market conditions: The 2019 Alaskan salmon harvest is expected to be very strong, reaching the eighth-highest volume and highest dollar value on record. The U.S. North Atlantic sea scallop harvest levels reached 58.2 million pounds in 2018, the highest since 2011, the fifth highest by volume since 1945, and the third highest by dollar value on record. Scallop harvest levels have been strong throughout the summer of 2019 and are expected to be consistent with, or above, 2018 levels. Scallop pricing has been trending above 2018 levels as well.

The U.S. North American lobster harvest topped 120 million pounds in 2018, down from the 2016 record harvest of 132.6 million pounds. However, lobster harvest levels for 2019 look to be well below 2018 levels, with a relatively slow start to the season; the reported catch as of the end of summer 2019 was well below the 2018 yield. Although, pricing was briefly lower in mid-summer, it has been trending higher and, as of October 2019, was over 2018 levels due to weak harvest levels. Additionally, as a result of the ongoing trade war, lobster exports to China have taken a nosedive since tariffs were first imposed in the summer of 2018. China has turned to Canada for East Coast lobsters, as they are most similar to those from Maine fishermen. Overall, the seafood tariffs have caused disruption in the U.S. marketplace ranging from the closure of several seafood processors to large shifts in the export marketplace with U.S. exports being diverted away from the Chinese market.

Prices trending up: August 2019 shrimp imports to the United States showed an increase in total volume for the sixth straight month. Of the top U.S. trading partners, positive year-over-year numbers were seen from most, with the exception of China and Ecuador, which were down 6.9 percent and 62.1 percent, respectively. This is further evidence of the potential impact African Swine Fever is having on protein markets, as China has reduced its shrimp exports to provide substitute proteins to its domestic markets. Although shrimp prices strengthened over the course of 2019, they fell in September and October, as a reaction to historically high prices and seasonal conditions.

Tilapia inventories are reported to be high, as distributors imported a high volume in the spring 2019 prior to Chinese tariffs being fully implemented on this species. Since then, pricing has continued to strengthen, reaching a high in October 2019. As with most types of protein, seafood sales levels are highly elastic and reactive to pricing. Generally, the lower the cost of fish and seafood, the higher the demand. However, lower pricing also lowers the selling price of operators’ products, bringing down revenue per sale. The opposite occurs when fish and seafood prices rise. However, some luxury seafood items are not price sensitive, so demand can be sustained despite high prices. Overall, seafood prices have been rising with the Producer Price Index for seafood product preparation increasing by 10.7 percent since 2015 and by 1.0 percent for the period of January through September 2019.

Global Warming Impacting Harvests: Based on the best available science, the world’s aggregate climate temperature has warmed by about one degree since the nineteenth century and is poised to continue warming in the near term. While acceptance of this throughout the world as proven fact and the cause of this warming is far from settled, it is not hard to see on a regional and local basis the impact warming waters and related environmental factors are having on fisheries. From low oxygen levels in Cape Cod to unusually warm water on Newfoundland’s south coast, to various species migrating north, record catches, and improving stock assessments of select species, the North American fishing world is being heavily impacted by warming waters. Generally, but not always, warming has a negative impact on harvest rates. In September 2019, Cape Cod Bay had a die off lobsters, fish, shellfish, and even sea worms, which turned out to be due to a lack of oxygen in the water from extended warm weather in the late summer and early fall.

Warming water also had an impact on Newfoundland’s southern coast in summer 2019, where a salmon fish farm located in offshore sea pens around Fortune Bay had a die off potentially as high as 1.8 million fish. Faltering lobster catches in the gulf of Maine are generally attributed to the warming trends that have been seen over the last decade or two, which have shifted the harvest regions of North American lobster northward in the Gulf of Maine and further up into Atlantic Canada. 2019 had the second-highest average mean water temperatures on record in the gulf of Maine, and on a year-to-date basis weaker than prior year landings. However, on Prince Edward Island in the Gulf of St. Lawrence, catches as of July 2019 were up and have been trending well above 2018 record levels, as the biomass center of lobster seems to be inching northward. In Alaska, the 2019 black cod stock assessment is the highest ever on record and is more than twice as high as the last record assessment in 1977. Among other factors posited for the high recruitment levels are warming ocean temperatures.

Eligibility and perishability important: Due to the perishability rate of seafood, product age and integrity is critical to recovery value. When lending on these assets it is important to understand the implications of eligibility and expiration dates for different varieties of fish and seafood. As an example, live lobster and farmed fish can often be deemed ineligible on the Borrowing Base. Similarly, fresh fish is often deemed ineligible due to its short shelf life of three to 14 days under typical circumstances. Frozen fish and seafood can have up to 18 months of shelf life; however, quality and desirability starts to diminish at nine months. The short shelf life of fresh seafood necessitates rapid turnover in finished inventory levels. Products that are not sold fresh are also typically frozen or rendered quickly. This short fulfillment cycle has a positive impact on recovery values in an orderly liquidation sale.

Proper storage is critical to maintaining freshness and value, which is why many seafood processors contract with third-party cold storage facilities to manage inventory. However, lenders should beware of liens these third parties may have on inventory stored at their facilities and should consider whether inventory held at these locations should be excluded from the Borrowing Base to minimize risk.

Recalls are a risk: While appraisals typically do not consider the sale of inventory under extraneous conditions, such as recalls, lenders need to remain aware of the catastrophic effect such an event can have on value. For 2018 and 2019 (to date), the FDA has published 15 separate recalls involving seafood products for various reasons including the risk of Listeria monocytogenes. This is an increase over the 11 recalls published during 2016 and 2017. The risks of foodborne illnesses such as Listeria can have a devastating effect on health, reputation, and value. In rarer instances, just the perceived risk of contamination can be enough to dampen demand for products.