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A Deep Dive Into Fish and Seafood Secured Lending

Date: May 17, 2016 @ 07:00 AM
Filed Under: Current Environment

Shrimp in various species, counts and countries of origin remain one of the most popular varieties of seafood, with prices varying widely. Due to several factors, the white shrimp index witnessed significant market volatility over the past eight years. The commodity bubble and financial crisis between 2008 and 2009 kept the index between $3.00 and $4.00 per pound during that time. In late 2010, the Gulf of Mexico oil spill and production issues in Indonesia moved the index above $4.00 per pound, peaking at $4.75 per pound. Carryover production in 2011 and increased Indian production caused the index to flatten in 2012 to just above $4.00 per pound for most of the year.

In September 2012, an emerging disease, early mortality syndrome (EMS), struck shrimp farmers in China, Vietnam, Thailand and Malaysia. EMS was characterized by mass mortalities during the first 20 to 30 days of culture in grow-out ponds. As the United States only provides an estimated 10% of the domestic shrimp consumption, the decrease in supply from Asia caused the white shrimp index to move steadily upward. Index pricing increased from $4.75 per pound in early 2013 to over $6.30 per pound by early 2014.

As the market slowly recovered in 2014, the white shrimp index began to decline, with prices falling to just above $5.00 per pound in late 2014. A market correction in supply and pricing occurred in 2015, as prices bottomed out at $4.00 per pound in the third quarter before a seasonal uptick in the fourth quarter moved prices upward to $4.40 per pound.

In addition to shrimp, salmon remains a popular seafood among United States consumers. Chile is the largest exporter of farm bred frozen salmon, with a market share of more than 76%. (Norway remains a distant second place, with a 21% market share.) In 2015, import market price volatility was evidenced for farm bred, frozen Chilean salmon in six-ounce portion sizes, as prices steadily dropped from $6.50 per pound in January to $5.50 per pound in December. Some U.S. importers of frozen Chilean farm-bred salmon were forced to sell-off inventory in the first quarter of 2016 at or below cost, as older, higher cost inventory began to age. 

As noted earlier, environmental issues can affect both supply and prices of fish and seafood. For example, the Urner Barry seafood report mentioned earlier referenced the Chilean algae-toxic red bloom crisis caused a loss of $24 million, or roughly 90,000 tons, of farm-raised salmon. As a result, pricing for farm bred, frozen Chilean salmon rose to $6.20 per pound in April 2016.

Given the above, it can’t be overemphasized that purchased lots of frozen fish and seafood at third party cold storage facilities need to be audited and validated for remaining shelf life. To protect the secured lender from fraud and financial loss due to aged product, physical audits need to be conducted to verify the production/pack dates of random lots in third party warehouses. Any increase in aged goods would directly affect recoveries in liquidation as alternative channels would likely be U.S. fish and seafood exporters buying at less than 20 cents on the cost dollar.

Michael A. Petruski
Executive Vice President | Great American Advisory & Valuation Services
Michael A. Petruski is an Executive Vice President with Great American Group where he is responsible for marketing the Industrial appraisal practice with a specialty in both the Metals and Heavy Mobile Equipment verticals. For 14 years, Petruski had been the Director of Collateral Evaluation Services for Wells Fargo Capital Finance / Asset-Based Lending, Charlotte, NC and prior to that, for Citigroup’s Leveraged Finance Division in NYC. He has extensive domestic and international experience in manufacturing, global sourcing of steel and aluminum, and marketing and sales of metal packaging equipment for the American Can Company/Rexam PLC.
Comments From Our Members

Ben Haslam
The largest was probably the Bubble Bee facility run by Fleet/BofA in the early 2000's. That revolver was up to $165MM at one point. As part of the collateral, fish on the boat were consider eligible in the borrowing base. That made for some interesting discussions on how to liquid if needed.
5.20.2016 @ 11:34 AM

Jeffrey Bilus
Lending on Fish on the boat (In transit)? I am sure BB owned the boats and the fishing people were employees of BB. If not, then you have a simple Over Advance Facility disguised as Inventory in Transit or what we call an Air Ball or LOA (lending on air).
5.25.2016 @ 12:04 PM
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