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Snow Crab Outlook 2019John Sackton

Seafood DatasearchShippagan, Moncton, Shediac

March 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, cod – Atlantic Canada, Alaska, and US West Coast

• 2005-2018 Price arbitrator for Alaska crab

• Research on Mussel and Oyster Markets

• Co-Founder of NFI’s Global Seafood Market Conference

• Publisher of Seafood.com News

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Outline for Today• MarketHistory:HistoricHighPrices• WhatHappenedin2018• CanadianSupplyOutlook• GlobalsupplyOutlook• JapanMarket• USmarket

– FoodserviceProductSales– RetailProductSales

• MarketIssuesfor2019

3

4

The snow crab market is at historic high prices

• Crabpriceshaveexceededtheirpriortradingranges• Mostoftherun-upinpricehasbeendrivenbyJapanesebuyers

• Globalcrabsupplieswillhavebeenincreasingfortwoyearsin2019

5

In recent years snow crab has broken out of its price band

Are we ina new$6.50 - $8.50trading range?

$1.50

$2.50

$3.50

$4.50

$5.50

$6.50

$7.50

$8.50

$9.50

1/2/921/2/931/2/941/2/951/2/961/2/971/2/981/2/991/2/001/2/011/2/021/2/031/2/041/2/051/2/061/2/071/2/081/2/091/2/101/2/111/2/121/2/131/2/141/2/151/2/161/2/171/2/181/2/19

25yearPriceHistoryforSnowCrab

6

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

0

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Julywhoesaleprice$US

GlobalSnowCrabSupply(MajorProducers)

Gulf+NS Newfoundland Alaska Russia RussiaBarents NL5-8

Long term changes in crab value

Financial Crash Loss of Japan

live CrabIncrease in Gulf,

NL

Supply shock;raw frozen Japan Buy

7

Canadian Frozen Crab exports to the US were down 23%

0

5000

10000

15000

20000

25000

0

10000

20000

30000

40000

50000

60000

70000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Metrictonsm

eatpickingforJapan

MetricTons

CanadianFznCrabExports

UnitedStatesofAmerica China Japan OtherAsia totalmeatpickingJapan

8

0

1

2

3

4

5

6

7

8

9

10

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018-oct

Snow Crab Annual Pricing (5-8 NL)

High

Low

Avg

= Oct 2018

Snow Crab Annual Pricing (5-8 NL)

9

Harvester prices also set record in Gulf

9

Shore Prices from Association des crabiers acadiens; DFO

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

VesselPricing- $CAMidshoreFleetPricing NBPricing QuebecPricing NLPricing

10

Can crab prices stay in higher value range?Japan• Brinefrozencrabmarketisshrinking

• Strongdemandforrawfrozencrab,butmarketcanbecomeoversupplied

• GlobalsupplyIncreasing• KeyquestioniswhetherChinaisbuyingsnowcrabfordomesticconsumption

US

• Retailerusageisdeclining• Foodserviceusageisdeclining

• Buyersarelookingforsubstitutesbuttheyarenotalwaysavailable

• In2018,lowersuppliesfueledstrongdemand

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0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

2014 2015 2016 2017 2018 2019YTD

Metrictons

Dungeness

Dungeness will not be as prevalent a substitute in 2019

12

2018 saw drop in landings in almost all areas

0

5000

10000

15000

20000

25000

30000

35000

40000

3L OtherNL 12,18,25,26 13,14,15,16,17 NovaScotia

Metrictons

Majorsnowcrabareas

2016 2017 2018 2019est

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Prices Increased on larger sizes• USbuyersincreasedtheirshareofcrab• Japaneseincreasedtheirbuyingofrawcrab• 5-8crabshowedsomepriceweaknessintheAugust– FebruaryPeriod

• Lackofsubstitutesforsnowcrabkeptpriceshigh

• USMarketbecamemoreimportant

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-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

-5,000,000

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

2013 2014 2015 2016 2017 2018

KG

ChangesinDestinationofNLCrab

JapanSections JapanOther(InclRaw) USsections

USOther JapanChangefromPriorYear USchangefromprioryear

US increased market share in Newfoundland

15

US Crab Exports by province

NB NB

NL NL

QBQB

NS NS

16

Exports to China for meat picking declined

17

More crab from New Brunswick went to Japan

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MSC Impacts• MSChasrefusedtoliftthesuspensionofthecertificateintheGulf– Retailerstakingawaitandseeattitude– CrabFisheryhasoptionsduetostrongresponsetowhaleissuesin2018

– Highpricecanleadsomeretailerstolookforsubstitutes,butlobstercaughtinsimilargear

– WillnotaffectsalestoJapan,China• Don’texpectamarketimpactthisyear

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US snow crab supply down 14%

-40,000,000

-20,000,000

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

2011 2012 2013 2014 2015 2016 2017 2018

Pounds

USSNOWCRABSUPPLY

Alaska Canada Russia Norway/Grn/Latvia Other USExports

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Russian imports increased, but did not make up decline from Canada

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2014 2015 2016 2017 2018

Pounds

RussiancrabimportstotheUSIncreasedin2018

Russia Norway Greenland Lithuania China(mainland) Other

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Retail promotions fell on snow crab, but rose on king and dungeness

2384130993

79968

3425839486

71525

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

Dungeness Kingcrab SnowCrab

Storesw

ithProm

otion

s2017 2018

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Crab remains an important retail item

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Snow crab is losing market share to other crab species

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CrabSpeciesMarketShare

snow king crabmeat SnowPercent KingPercent Crabmeatpercent

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Per capita consumption of all crab continues to decline

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

crab

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Same pattern exists at foodservice

-5.6%

59.8%

11.4%

-8.2%

89.8%

2.3%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

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

snow dungeness king

Changeinusageofcrabatfoodservice

2017lbs 2018lbs percentchange 2017change

2017percent

2018percent

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Make up of crab species sold at foodservice

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

2016 2017 2018

pounds

Snow BlueCrab Dungeness Crabmeat King Rock/Jonah NotSpecified Red/Centolla

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Snow crab sales at restaurants fell in all regions but southeast

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The foodservice economy remains strong in the US

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Future Landings of Alaska Snow Crab may grow to 100 million lbs

Survey datashows bestcrab recruitmentsince the mid 1990’s

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US market interest is unpredictable

• Verylittlecrabininventory• AlaskacrabpriceshaverisensincethestartoftheirseasoninJanuary.

• InitialAlaskasaleswere$.35belowlastyear,buthavesincerisen.

• Buyersappeartohaveacceptedhighprices,butaredecreasingpurchases.

• Questionfor2019iswhethertheincreaseincrabsupplythatisforecastwillbemorethanthemarketisreadytotakeattheseprices

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Japanese snow crab supply continues to decrease

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When crabmeat (brine frozen sections) are added decline is been continuous since 2014

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2010 2011 2012 2013 2014 2015 2016 2017 2018

JAPANSNOWCRABIMPORTS(includingcrabmeatfromChina)RussianFederation Canada Norway UnitedStatesofAmerica Korea,Republicof Others Crabmeat(sectionweight)

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The Japanese demand for snow crab meat (legs) is down

• Japanesesupermarketsaleshavebeendeclininginrecentmonths

• SalestoSushirestaurantsaredownalso.

• Theycannotafforda2000yenbrinefrozenprice

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Demand for raw crab is up however

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

KG

RawvsBrineFrozenforJapanraw brinefrozenJapan

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Alaska increased sales to Japan in 2018 due to having more product

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

AlaskasnowcrabtoJapan

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Japanese market issues: NB sends lower percentage of crab to China; more to Japan

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

NB NL NS QB

ExportsbyProvinceofSnowCrab

UnitedStates Japan China Indonesia

VietNam HongKong PercenttoJapan PercenttoChina

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Japanese pricing has huge impact on market

• Forpasttwoyears,Japanesecontractpricehassettheinitialmarketpriceforsnowcrab.

• Thisyeardemandforrawcrabremainsstrong,butdemandforbrinefrozenisveryweak.

• JapaneseofferedlowestpricesonAlaskacrab• Declineinusageofcrabmeatishavingimpact

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Crab prices increased again in 2018

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Newfoundland and Gulf prices are very similar

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Russian import prices

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The price spread between 8-10’s and 10 ups and 5-8 sections is largest ever

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Pricing on 5-8’s is sending a mixed signal: Prices are now lower than at peak of 2018 season

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

Dec-Mar April May June July Aug Sep Oct Nov

PricesGoDowninAprilandMay

2009 2012 2014 2015 2018

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Years Harvester Prices decline have often happened after years when wholesale prices have fallen

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

ShorePricesforCrabinNewfoundlandandtheGiulfGulfNB NL

2009

2012 20132015

2019?

44

2010,2011,2013, 2016, 2017 Prices higher at end of season

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$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

Dec-Mar April May June July Aug Sep Oct Nov

PricesRiseinAprilandMay2010 2011 2013 2016 2017

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With the big spread in value by size, we looked at the changes in amount of large crab in NL

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2010 2011 2012 2013 2014 2015 2016 2017 2018

SectionSize5to8oz 8to10oz 10up Notcalculated(3-5ozNotJapan) percent5-8 percent8-10 percent10up

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Currency factor in US sales

2018 has seen a strengthening of the US dollar –a boon for Canadian exporters, and this appears to be continuing.

April - May

current

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Issues for pricing 2019• Marketdemand• SubstituteProducts• OverallSupply• Appetiteforcrabatcurrentprices

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Market demand remains strong in US, weaker in Japan

• USmarketdemandisverystrong

• Noinventoriesofcrabexist

• TemporarypriceweaknessinDec-Febon5-8’shasbounced

back

• InJapan,demandforsushicrablegsfrombrinefrozenisweak.

Crabistooexpensivefortheseusers

• Demandforrawcrabremainsstrong

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Substitute Products• Althoughretailerandfoodservicearelookingforsubstitutes,veryfewexist– Dungenesscrablandingslowerthisyear– KingcrabsupplytoUSandJapanwasdown– Lobstertailwasnotavailable

Thishasmeantthatbuyershavebeenforcedtochoosetostickwithsnowcrabeveniftheywantedtoswitchtosomethingelse

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Overall Supply• Forthefirsttimeinfouryears,overallsupplyofsnowcrabisexpectedtoincrease.

• BiggestareaofincreaseisintheGulfandinAlaska• EventhoughAlaskaseasonisover,someUSuserswillhavecontractedtheirneedswithAlaskacrab

• GreenlandandRussiawillalsoseelesserincreases.• Anincreaseinsupplywhenthemarketsizehasgottensmallerisaclassicscenariothatleadstolowerprices

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Appetite for crab• Notpossibletomakepredictions.• Currentpricelevelswereunexpectedinboth2017and2018.

• ThismeanstherecontinuestobeastrongappetiteforsnowcrabamongUSconsumers,especiallyinthesoutheast.

• Withfewsubstitutes,thismayhelpmaintaincrabvaluesathighlevels.

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Factors to Watch This yearKeepingPricesHigh• Lackofinventory• Strongmarketdemand• Strongdemandforlargersizes

• Disciplinedsalestacticsbybigproducersmaximizeprices.

• FavorablecurrencyratesforCanadianexporters

PushingPricesLower• IncreasesinSupply• WeakdemandforbrinefrozeninJapan,China

• AnyhiccupinUSeconomy,oraslowdown,couldbebadforcrabsales

• EconomicslowdowninChinaisalsohittingJapan,whereeconomymaybeweak

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Outlook

• LastyearImadeacorrectpredictiononprices:“Mypersonalgutfeelingisthatpriceswillstartoutstrong,butbythemiddletolaterintheseason,willseesomeflatpricesordeclines.”

• Howeverinventoriesof5-8’sdidgetsold,withsomeJapanesecancellationsgoingtoUSmarket

• Thisyearagainpricesseempoisedtostartouthigh.CurrencymayhelpmaintainCanadianshoreprices

• WholesalepricesintheUSmarket,however,arelikelytodeclinelaterintheyearasmorecrabisofferedthanthebuyerswanttotakeatcurrentprices.Achangeintheeconomyisabigrisk.Ingeneralthereappearstobeahighriskofholdingcrabsectionsthisyear,unlesspricesadjust.

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Thank you.Time for Questions