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1
The Canadian Lobster Industry: Market Value, Trends and Issues
John SacktonSeafood Datasearch
Moncton, Shediac, and ShippaganMarch 27-28, 2019
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Background• 40 Years in Seafood Industry
• Crab, shrimp, lobster and cod
market analyst since 1997
• Preseason price and market
outlooks on shrimp, crab, lobster
and cod – Maritimes,
Newfoundland, Alaska, US West
Coast
• Price arbitrator for Alaska crab
Fisheries 2005-2017
• Co-Founder of NFI’s Global
Seafood Market Conference
• Shrimp, Crab, Lobster Analyst for
US National Fisheries Institute
• Publisher of Seafood.com News
• Owner of Seafood Datasearch
3
Outline for Today
• EconomicvalueofCanadianLobster• Wheredoesthisvaluecomefrom?• StrengthsandChallengesoftheLobsterIndustry
• CurrentMarketIssues• Pricing• FactorsPushingIndustryChange• Outlookfor2019
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Lobster is by far the most valuable Canadian Seafood Export
0%
10%
20%
30%
40%
50%
60%
70%
80%
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$000’sCanadianDollars
Lobster FarmedSalmon Other LobsterPercent
All Other
Lobsterpercentageoftotalseafoodexportvalue
Lobster
Farmed Salmon
5
Lobster supply remains near record levels
54,092 48,04658,137 57,706
66,265 66,09074,055 77,018
84,807 86,198 92601 92,762 97849 95000
34,17629,019
31,710 36,820
43,640 47,593
57,748 57,97356,257 55,521
59,85350,311
54,316 54000
8,620
7,013
7,4038,176
8,9889,183
9,795 9,66610,174 10,747
11,789
7,520
79417000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(est)
MetricTons
After9YearsofGrowthTotalLobsterLandingsDeclinedin2017andCameupSlightlyin2018
Canada Maine OtherUS
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Lobster Value has Grown as Landings Have Increased
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$000US
ExportValueforLiveLobster($US)
7
For the Maritimes, Lobster represents 52% of export value;crab and shrimp are important also
Lobster,$2,129,391.00,
52%Crab,$1,491,598.00,
37%
Shrimp,$468,349.00,
11%
2017
Lobster Crab Shrimp
meat11%
tails21%
wholecooks11%
Live57%
meat tails wholecooks Live
By Product volume, Live represents about 57% (2017)
Value
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Despite Increasing Sales to China, the US is the dominant buyer of Canadian lobster
0
10000
20000
30000
40000
50000
60000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MetricTons
LiveLobsterUnitedStatesofAmerica China EU OtherAsia Others
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MetricTons
FrozenLobsterUnitedStatesofAmerica China EU OtherAsia Other
US
ChinaEU EU
China
US
9
Live lobster price China vs. US by qtr
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
2014-Q2
2014-Q3
2014-Q4
2015-Q1
2015-Q2
2015-Q3
2015-Q4
2016-Q1
2016-Q2
2016-Q3
2016-Q4
2017-Q1
2017-Q2
2017-Q3
2017-Q4
2018-Q1
2018-Q2
2018-Q3
2018-Q4
Livelobsterexportpriceperlb forUSandChina
USdollarperlb Chinadollarperlb Linear(USdollarperlb) Linear(Chinadollarperlb)
ChinaUStariff
10
US and Canada Have a Deeply Integrated $US 4 Billion Reciprocal Seafood Trading System
• Sofar,thishasnotbeen disruptedbytradetensions
• CanadaisgainingadvantageoverUSbyopeningnewtrademarkets– CETA– TPP– ExpandingTradewithChina
• USexportstoCanadaincreasedin2018yearover2017.
• ButwithUSshutoutofsomeexportmarkets,excessUSproductcoulddepressprices
CA to US 2017 $US 3.3 billionCanada top exports to US
VALUE PERCENTsnow crab $ 594,413,989 18%LOBSTER 1,066,662,765 32%
SALMON 651,560,477 20%
US to Canada: $US .95 billion
US TOP EXPORTS TO CANADA
Lobster 233,117,642 25%
salmon incl wild 84,354,788 9%
The US and Canadian Markets are Deeply Tied Together
11
Tail - 20-24%
Claw knuckle leg meat:9% to 13%
Live - 100%
Whole Cooked - 86%(average cook loss, can be reduced about 5% with treatments)
Yield is key to understanding Lobster pricing and why live lobster
demand sets shore prices
Calculations based on averageof 22% for tails and 11% for meat
12
Breakdown of 500 lbs lobster by raw material pounds and cost at various shore
pricesCostatShorePrice
Livelbs WholeCookcost
Tailscost Meatcost
Processed(tails/meat)rawmat$
100% 86% 22% 11%Pounds 500 430 110 55 1655.00 $5.00 5.81 22.73 45.45 15.156.00 $6.00 6.98 27.27 54.55 18.187.00 $7.00 8.14 31.82 63.64 21.219.00 $9.00 10.47 40.91 81.82 27.27
With $9.00 shore price, processors $CA for tails and meat is $CA 27.27 (20.31 $US). Current US pricing is $20.00 for 4 oz tails, and $17.75 for lobster meat.
13
Lobster Landings by LFA
2,973
7,626
7,1408,099
7,000 6,092
1,9254,5017445418211,2031,166
8,017
22,679
3,072
3,372
4,915
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Tons
LFALandings2017
38363534333231B31A3028&292726B26A25242315-221-14c
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US Live Exports to Canada support New Brunswick’s processing sector
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2012 2013 2014 2015 2016 2017 2018ytdOct
LOBSTER(HOMARUSSPP.)LIVE/FRESH
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
NB PEI NS QB NL
EstimateduseofUSImports,plusmeatandtailexportdata
Meatexports TailExports USImports-liveweight Landings-liveweight
15
New Brunswick and PEI produce frozen lobster; Nova Scotia produces Live
NB61%
PEI23%
NL4%
QB6%
NS6%
PercentofLandingsGoingtoFznLobsterNB PEI NL QB NS
NB18%
PEI8%NL1%
QB8%NS
65%
PercentofLandingsGoingtoLiveNB PEI NL QB NS
16
Result is different industry structure in different provinces
• NovaScotia:livelandingsinLFA33and34inDecember
• NewBrunswick:landingsforprocessinginspringand
fall;livelandingsinbayofFundy
• PEI:mostlyprocessingfrozenlobsterMay-June,Aug-Sept.
• Quebec:Bothprocessingandlivemarkets
• NL:mostlyfrozenprocessing
17
Structural problem
• Liveproductssetmarketprice
• Whenlivemarketisstrongprocessorsarepricedoutofmarketbyrawmaterialcosts
• ResultisthatprocessormarginsinbothNBandPEIareoftenunderwater.
• Industryprofitsheavilyfavorharvestsector.
• Harvestsectorhaspoliticalclout
18Raw Frozen Tails Frozen raw split lobster body and tail
Yield issues make it important to “sell the shell”
19
Unique Strengths and Challenges for Lobster
• Employs25,000harvesters;71%ofallmaritimefishers
• Widespreadgeographicdistributionmaintainseconomicviabilityofcoastaltowns
• Providesprocessingemployment
• Strongexportdemand• Sustainablyfished
• Landingsglutsreducevalue• Highpricevolatilityduetodemandforlivelobster
• Highlyvariablequality• Highlyfragmentedbuyingstructurewithmiddlemen
• CrossborderindustryforbothUSandCanada
• Cashbusinessheavilydependentonfinancing
20
Problems Encapsulated in Price volatility which kills markets
Lobster meat 70%
Tails 21%
Live: 80% April; July – Dec 7-8%
Cod Loin 7%
21
Could lobster products be mis-matched with
markets
• TrendinUSmarketistousemorefrozenlobster;thisisgrowingareainfoodserviceandretail.
• Liveshellonlobsterishardtoeat;only1%ofUShouseholdsbuylobster.
• Frozenandprocessedlobstermoreaccessible.50%UShouseholdsbyshrimp.
• Volatilityoffrozenpricespreventsmarketexpansion.
22
Current market conditions
• Lobsterisademanddrivenmarket• MoreinshellCanadianfrozenproductgoingtoUS
• MorelivelobstergoingtoChinafromCanada
• Thisisdrivinguprawmaterialprice
• Aftercontractingin2017,lobstersupplyincreasedin2018
• USlobstermarketremainedstrongduetoeconomy
• UShadlimitedliveexportstoChinaduetotariffs
• For2019awintertospringshortfallexpectedonfrozenlobster
• IndustryiscountingonChinatoconsumelobsteratcurrentpricelevels
23
US domestic lobster supply slightly
increased in 2018
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2011 2012 2013 2014 2015 2016 2017 2018Pounds(000’s)
USlandings CanadaImports(live) USImportsMeatUSImportsTails(homarus) USimportsTails(rock/Spiny) USexportsLive(NotCa)UsExportsSpiny Exportstocanada(live)
24
More frozen tails and whole cooks going to US
• Expansionoflivemarketshasmeantlivedemandsetswharfprice
• Moreprocessedlobster(tails,meat,scoredclaw)goingtoUS
24
US
China0
500000
1000000
1500000
2000000
2500000
3000000
3500000
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
CAFrozenLobsterExportHasDecreasedtoChina,IncreasedtoUS
UnitedStatesofAmerica GreaterChina
25
Expansion of demand for frozen lobster in US in 2018
• Frozentailsandotherin-shelllobsterincreasedin2018
25
8,484,1479,906,417
8,215,163 7,449,056
16,165,178 15,707,032 14,533,505 15,456,492
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
2015 2016 2017 2018
CanadaExportstoUSbyProductForm
LobsterMeat Live Tails
26
When converted to live weight,
meat and tails are the largest volume to the
US
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
2015 2016 2017 2018
POUN
DS
LiveweightequivalentExportstoUS
LobsterMeat Live Tails
27
Frozen lobster showed 8% growth at Foodservice
• NFINPDData
SouthAtlantic+7.5%
Mountain/Pacific
+15.1%
NewEngland+5.0%
MiddleAtlantic+14.5%
EastNorthCentral
+5.3%
WestSouthCentral
-13.0%
WestNorthCentral
+8.8%
EastSouthCentral
+8.4%
Canada26%
Maine/US14%
Spiny/Rock11%
NorthAtlanticNotSpecified
49%
ORIGINOFFZNLOBSTER
MARKET SHARE PLUS GROWTH RATE IN 2018
27
28
Lobster Pricing for live, meat, tails
meat
tails
live
Peak live prices with very low volume
29
Canadian Live Exports Increased to Chinabut were down to US
Seafood Datasearch: Intracen customs data
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
2015 2016 2017 2018
Livelobsterexports
US Europe China OtherAsia Other
30
CA Frozen lobster excluding meat
Seafood Datasearch: customs data
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
2015 2016 2017 2018
FrozenlobsterExcludingMeatUS China Europe OtherAsia
31
Meat exports
Seafood Datasearch: customs data
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2013 2014 2015 2016 2017 2018
LobsterMeat Lobster meat isshipped almostentirely to the US
32
Comparison of lobster meat vs. tail and frozen exports to US
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
2015 2016 2017 2018
LobsterMeat FrozenLobstertoUS
Look at Longerhistory
33
Tail prices are higher than meat prices for first time in 10 years
0
5
10
15
20
25
30
0
5,000,000
10,000,000
15,000,000
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35,000,000
40,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ChartTitle
Lobstermeat lobstertails Lobsterwholecooks(est) MeatPrice TailPrice(4oz)
Exports of Canadian meat and tails to US
34
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
04/05/16
05/05/16
06/05/16
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04/05/18
05/05/18
06/05/18
07/05/18
08/05/18
ShorePrices2016and2017and2018PEICNR NBN.ShoreCNR PEI NBN.Shore NSN.Shore Newfoundland
Shore Prices
Seafood Datasearch
PEI Aug ‘18 Price up $.25 over 2017
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LFA 34 Season
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
LFA34Landings In 2018, high demand forlive lobster for China and the US pushed prices upto $9.00 at times.By end of year prices retreated somewhat to the$8.00 range.Result was that almost nolobster for processing wasbought at $7.00Landings should be comparableto past two years.
36
Canadian Export Price to China & US
Seafood Datasearch
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
1/1/16
2/1/16
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LiveVolumeandPricetoUSandChina($CA)
Chinaqty usqty ChinaVal$CA USVal$CAChina US
PercenttoChina
2016 15,030,226 60,643,004 19.9%2017 19,193,492 61,524,624 23.8%2018 31,056,815 58,299,251 34.8%
37
China lobster demand is not slowing
• Data:Intracen
Total live Homarus from US and Canada
US shipments exceeded prioryear until July, when tariffs were imposed
37
0
5000
10000
15000
20000
25000
2014 2015 2016 2017 2018
MetricTons
ChinaLiveLobsterDemandCanada UnitedStatesofAmerica
38
US Trade War with China Risks
RisksforUS• Shutoutofmajorexportmarket• Acceptlowerpriceinalternativemarkets
• DisruptUSseafoodimports• Cutsalesofsomeitemsduetohighercosts
• LowervaluestoUSHarvesters
RisksforCanada• Overheateddemandforlobsteratwharf
• MismatchbetweenChinesepricesandothermajormarkets,especiallyUS.
• Growthof‘GrayMarkets’inCanada• CAIndustryoverlydependsonChinesemarket
38
In worst case scenario, US Harvesters agitate to limit Canadian Seafood Imports to boost their incomes
39
How China trade impacted lobster from Canada• Chinademandnowdominantfactoringloballivelobsterprices• Canadiantradeshiftedto:
– Morelivelobster,lessfrozentails,meat,wholecooks– MoreliveshipmentstoChinathantheUS
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
Jan-17
Feb-17
Mar-17
Apr-17
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CANADAEXPORTSMOSTLYTOCHINASINCEJULY
US GreaterChina OtheAsia N.Europe S.Europe Others
Live exports from US and Canada grew 7.6% over 2017
Frozen exports fell -6.7%
*Biggest drop was in fzn lobster to China. US fzn imports actually increased.
39
Tariff imposed
40
Canada becoming live supplier to China
-
2,000,000
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Jan Feb
March Ap
rilMay
June
Juky Au
gSept Oc
tNov
Dec
FlowofLiveLobster2018
CAtoChina UStoChina CAtoUS UStoCA
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
0
500000
1000000
1500000
2000000
2500000
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
ChartTitle
uschina cachina usca caus
2017 2018Differenceuschina 16,482,522 19,214,196 2,731,674usca 52,914,148 62,334,869 9,420,721cachina 18,973,764 30,535,006 11,561,242caus 61,800,425 58,299,251 (3,501,174)
41
Ecuador Experience vs Canada: Both become more dependent on Chinese Market
0
50000
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150000
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2013 2014 2015 2016 2017
EcuadorMovestoChinaMarketforShrimpUS Europe China
0
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35000
2013 2014 2015 2016 2017
CanadaLiveLobsterExportsUS China&Asia Europe Japan
42
Overview of Live season
• USremainslargestmarketbutsinceJuly,Chinahasbeenbiggerimporter
• Positivefactorsinclude:– Stableexchangerates– StrongUSeconomysupportslobstersales
– Retailmarketscanabsorblivelobster
• Negativefactors:– Unlikelobstermeat,demandforliveishardtoexpandatfoodservice.
– Expandingatretailmeanslowerprices
– LivelobsterisanicheseafoodproductforconsumersoutsideofafewareasoftheUS.
– ExpansionwilldependonNon-USmarkets
43
Canada has advantages as global supplier• USTradePolicyDisasterhasbeen
gifttoCanadianshippers:
– PreferredsuppliertoChina
– PrimarysuppliertoEurope
• LackofAmericancompetitionin
Chinawillhelpmaintainprices
• Insecondarymarkets(Korea,
Singapore)USwilldiscountprice,
undercuttingCanadianSellers
• StrongTailmarketisonlyplace
processorscanmakemoney.
• Meatinventoriesfinallyappearto
becleanedup.
• Processorsgotburnedwith
overproducingwholecooks,and
tailsin2016.
• Sincethentheyhaveremained
cautious.Unlikelytospeculate
despitehigherprices.
44
Tail Prices by Size
45
Warm water tails
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
2014 2015 2016 2017 2018
Total
46
Lobster tail sales go with stronger economy and lower unemployment
47
Summary• MeatandTailmarketisveryunstable• Run-upinpriceinmeatmarketclassicexampleofdestroyingdemand.• Inversionofmeatandtailpricingseemsunlikelytolast• FrozenlobsterrawmaterialcostisbeingsqueezedbyexpansionoflivetradetoChina• Yetbyliveweight,frozenlobsterrepresentsatleast40%ofvolume• Issuesforprocessors:
– Riskinholdingtailsandmeatifmarketpricedeclines• Frozenlobstercouldhaveanopportunitytoexpandmarketduetohighpriceandlackof
supplyofsnowcrab.• Harvesterdilemmaisthatvaluesmaydifferforliveproductandcannersbyagreater
amountthanusual.• Alsoshippablevs.non-shippablelobsterscouldhavevariationinprice
48
There have been many studies on whether the lobster industry
is undervalued
• Buyingstructureleadstopoorquality,noincentivetoimprove
• Pricevolatilityreducesmarketabilityofprocessedproducts
• Cashflowproblemsduetoglutsforcepackerstotakelowerprices;industryispoorlyfinanced
• SeasonalityofLFAlandingsonlypartiallyaddressesproblemofsoftshell(molting)lobsters
49
Why are major companies and Private Equity Investing in Lobster
• MajorseafoodcompanieslikeThaiUnion/ChickenoftheSea,Mazzetta,andChamplainFinancialallinvestinginlobsterindustry.
• Theyseelongtermvalueinaluxuryresourcewithgrowingglobaldemandandsteadysupply
• Thisvaluecan’tberealizedbywhathappenedtothemeatmarket– boomandbust.Insteadithastodevelopoverthelongertermwithamoregradualincreaseinvalue.
50
Thai Union also bought Red Lobster• RedLobsterisakeybuyerintheindustryformanyyears.• Largestuseroflobstermeatandtails.• ButRedLobstercustomerismiddleclass,andverysensitivetoprice.
• Howwillcompanykeepsellinglobsterifpricecontinuestobeabovewhatcustomerscanpay.
• Justbecauseamarketisheretodaydoesnotmeanitcannotbegonetomorrow
• Newfoundlandusedtoproducemillionsofpoundsofcrabmeat,primarilyforRedLobster.Nowthatproductistotallygone.
51
DFO Mandated changes to carapace size
• ChangestominimumsizehaveincreasedvalueinLFA’sbychangingmixofmarketsvs.cannerlobsterThiswasDFOmandate.
• Effortstochangebuyingpracticeshavenotbeenwelcomed
• Otherfisherieshavetotallychangedtheirvalueequationthroughindividualquotas.
• Lobsterindustryhatesquotas;significantsocialfearsoflosingcontrol
Can the Status Quo Ever Change
52
Numerous industry studies and reports mostly focus on same issues
• Glutsinlandings• Poorqualityandhandling• Inefficientbuyingnetwork• Lackofmarginsforlobsterprocessors• HighFinancingcostsleadstocompanies
tobepricetakers• Vulnerabletoracetobottominvalue• Pricevolatilitydiscouragesconsumption
53
Lobster industry participates in seafood value chain roundtable
Goals for 2023:
54
Lobster industry is in transition• Currentmarketisverystrong;butitiserodingdemandformeatandtails.
• Whencrabsectionsgotpricedtoohighforpackerstoproducemeat,theygaveuptheproducttodosectionsonly.
• LobsterqualityistovariableforCanadatogiveupprocessingfrozenlobster:itisnecessaryforlowerqualityandsmallerlobster.
• IncreasedlobsterprocessinginUSwillalsobeachallenge
55
Time for Questions