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Lobster Market Update

April 17, 2020

Lobster Market Update

The following is based upon relevant market indexes, trade publications, information from the Government of New Brunswick, and discussions with NL harvesters and buyers.

The Newfoundland and Labrador lobster fishery is incredibly important to thousands of fish harvesters in the province. Since 2009, the landed value of lobster has increased from $18 million to $62 million. The lobster fishery is the second most valuable fishery in the province and going into 2020 we fully expected that growth to continue.

COVID-19 is negatively impacting the lobster fishery perhaps more than any other fishery in the province. As a sector we need to be understand the challenges we face and develop a united response.

Market Challenges:

  • Difficulties in our markets: The biggest export market for NL lobster is the United States. In 2019, we exported $72 million worth of lobster, nearly $56 million went to the United States. The U.S. market is currently very poor, as the restaurant, tourism, and cruise ship industries that we rely upon are essentially closed. There is no timeline as to when these industries will restart and there is a strong possibility that this will not happen before this fall. The loss of the U.S. market cannot be replaced quickly.

The COVID-19 situation in China has improved significantly in the past 6 weeks and the Chinese economy is coming back to life. With that said, the Chinese economy was hit very hard by the COVID-19 crisis and is struggling to rebuild itself. There have been planes carrying Canadian lobster going to China, but at a rate far lower than in past years. The Chinese market is also very fragile. After several weeks of very few cases, China experienced a small outbreak of COVID-19 last week. This small outbreak once again reduced demand for Canadian lobster and there have been no flights since.

In recent years we have exported more lobster to Europe, however, Europe is the epicenter of the COVID-19 crisis and is also in difficult shape. There is little demand in Europe at the moment.

  • Supply Challenges: Each year there is approximately 300 million pounds of lobster landed in Canada and the Northeast US, with NL’s share being 10 million pounds (a record high in 2019). If nothing changes in the next few weeks, several lobster fisheries in the Maritimes and Maine will start fishing and millions of pounds will be landed if there are buyers willing to buy. Currently, there is no market for the vast majority of what will be landed in the next month.
  • Price Concerns: In order to have a commercial lobster fishery, there needs to be buyers willing to buy the lobster that is landed. As it stands, giving the market challenges, it is unclear how engaged NL lobster buyers will be this year. This has been discussed with many NL buyers in the past few weeks and most have expressed little interest in buying large quantities of product because they say they have no one to sell it to. It was stressed to us that buyers see enough demand to buy for a few days to a week and after that they will stop with no guarantee they would resume. Given the uncertainty around how long this crisis will continue, buyers have also expressed no interest in holding lobster.

There have been reports that one buyer is claiming that it is willing to buy all the lobster that is available. These reports are contrary to all statements from the NL buyers we have spoken with, as well as the perspectives voiced in the Maritimes, where buyers have been clear in their desire to stop or slow down landings. We do not know if these reports are true and we would question the motivations of any buyer who would make such a statement at this time.

The lobster price for NL harvesters is set using the Urner Barry price index. This approach to pricing has been very beneficial to harvesters, as it puts harvester prices in this province in line with the overall market. There are a lot of variables in setting a price, though most of it is based on supply and demand. Ideally, demand outpaces supply a little and prices increase and remain high. This is what has happened in lobster the last few years.

Right now, there is very little supply for very little demand. Next week that will change and supply will outstrip demand. By the end of May there will be a tremendous amount of supply and it is unlikely that there will be much of an increase in demand.

When supply is far greater than demand, it puts a strong downward pressure on market prices. This will happen this year in lobster, and it is highly unlikely that it will improve as the season goes on. The Government of New Brunswick has put together a model of the 2020 lobster fishery that many lobster groups in Atlantic Canada are using. In this model, if there is no change to how the fishery in Atlantic Canada is conducted, there will be an inventory of 97 million pounds by December because there are no markets. A new version of the model provides that if the fishery proceeds at 75% capacity for May until the end of July, there will be an inventory of 50 million pounds. That is better, though still a challenge.

The building up of inventories will be reflected in the Urner Barry price. Buyers will sell at reduced prices to move product and those prices will inform Urner Barry. To a lesser degree, a similar situation happened in 2019 when buyers in Nova Scotia dumped a lot of product for low prices on the market and Urner Barry dropped sharply.

A large inventory would also likely impact next year’s prices and fishery, as a large amount of demand would be met by product landed in 2020.

The price to harvesters has been above $5.00 per pound for every week since mid-June 2015. It is likely that the price will fall below that level this year. We do not know how low the market will go, but we are certain it will decline in the next few weeks. On a positive note, the exchange rate is in our favour and that will help.

This will be a difficult year, market wise, for the lobster fishery. The best-case scenario is that, for the sake of harvesters and the lobster market, the federal government steps up and provides some order to the lobster fisheries in the Maritimes, particularly Nova Scotia. Such intervention would allow for a smarter, more organized lobster fishery that could stabilize prices. However, we are not confident this will happen.