SEAFOODNEWS.COM by John Sackton – Dec 27, 2013 — With the expected growth of the US economy, and continued weakness in many other parts of the world, 2014 looks to be a rough year for seafood traders whose fortunes are tied to foreign currencies. For importers, a strong dollar is positive, and helps moderate prices. For exporters, the strong dollar weakens overseas sales by raising the relative cost of exports, and with more products sold at home, also moderates prices.
The overall trend is for a strengthening dollar. This means cheaper imports and a reduction in competitive price pressures felt by US importers. One of the major reasons for the 40% inflation in imported seafood prices since 2010 has been the weakness of the US dollar, which has made US buyers less competitive when bidding against buyers in other countries. This now seems to be reversing.
Japan: The Yen reached a trading level of 105 Yen per dollar yesterday, the highest it has been since 2008. The economic policy in Japan is aimed at weakening the Yen to spur manufacturing exports, and to stimulate some inflation. One result has been the record prices for Alaskan snow crab in Yen.
In the past three years, Japan's ability to pay higher prices for crab, surimi, cod and other products due to the stronger yen has helped these prices either maintain their levels or go up. Right now there is a tension between the stronger Japanese economy – with demands for more seafood imports – and a weakening currency – which makes those imports more expensive. IN our view, this balance will shift in 2014 towards the weakening currency being a primary factor -and this will make crab negotiations this spring in Canada very dicey.
Europe: The Euro traded at a two year high against the dollar this week. This has helped US exporters sell salmon, pollock, and cod to Europe. It will also help Canadian shrimp exporters if this trend continues. However, there has been some weakness in Europe as evidenced by some central banks lowering interest rates – and it is possible that the Euro will not maintain its current relative position as the dollar strengthens. Again, by this summer it may be a drag on export pricing.
China: The renminbi or Yuan, is now trading at a 20 year high against the dollar, although its rise is tightly controlled by the Chinese authorities. However it has made imports more expensive and as many Chinese seafood reprocessing companies operate on extremely tight margins, a weaker currency makes it harder for them to bid up prices for raw materials. At the same time, a weaker Yuan hurts Chinese importers who want seafood from abroad. Once again, the strength of the Chinese economy could cancel out any negative impact; but the change in currency makes the Chinese market more potentially volatile for seafood exporters. The other thing a weaker Yuan does it make it more expensive for the Chinese to buy shimp, and again on the margins this may help moderate global shrimp prices.
Canada: Right now the Canadian dollar has moved from parity to around 1.06 per US dollar, ie weakening about 6%. This trend is expected to continue. David Watt, chief economist at HSBC Canada said he expects the Canadian dollar to weaken to about 90 cents (U.S.) in the coming year (i.e about $1.10 CA per US dollar).
"Our view is that once the Fed tapers, the U.S. dollar will have some momentum behind it. That will result in strength of the U.S. dollar relative to a range of currencies."
So the bottom line is that the environment of the past two to three years where a weak dollar contributed to the rise of seafood prices in the US is changing, and as the dollar strengthens it will be a moderating influence on domestic seafood prices.
This story originally appeared on Seafood.com, a subscription site. It is reprinted with permission.