Frozen Sockeye Market

First wholesale value of the Alaska salmon industry was over $855 million in 2006. Frozen H&G sockeye was the most valuable single-species salmon product produced in Alaska, with first wholesale value of $153 million in 2006. Considering the strong sockeye harvest of 2007 and the 31-million-fish sockeye harvest projection for Bristol Bay in 2008, frozen sockeye will likely retain its title as the single most valuable Alaska salmon product.

The frozen sockeye market has changed significantly in the last two years, as evinced by changing export trends and the pace of frozen sockeye sales. This is of particular interest in 2007, considering the estimated frozen H&G sockeye production of 100 million pounds, up substantially from production of 81 million pounds in 2006.

 

Background: Changing Export Patterns
The export and sales patterns of 2004 – 2007 are the most relevant for illustrating the changing market for Alaska frozen sockeye. Harvest volume has been strong in all four years (42-47 million sockeye per year) and production of frozen H&G sockeye is fairly stable, ranging from 82 - 100 million pounds. Market conditions throughout the period reflect the modern era, with a long-established and plentiful market supply of farmed salmon and generally positive regard for wild salmon.

Traditionally, the bulk of Alaska frozen sockeye production was exported directly to Japan, immediately after the season. In 2004 and 2005, over two-thirds of Alaska’s total frozen sockeye production was exported to Japan by the end of August. This changed dramatically in 2006 when frozen sockeye exports to Japan fell to just 33 percent of production. The 2007 season shows that 2006 was no fluke, as just 23 percent of [estimated] frozen H&G sockeye production was exported to Japan by the end of August.

The initial, logical conclusion from these export figures is that sockeye consumption in Japan has fallen dramatically. However, the consumption decline is probably less dramatic than the export figures suggest. Consistent with global food industry trends, some degree of labor-intensive seafood processing has migrated from Japan to cheaper labor markets.

Through August 2007, U.S. exports of sockeye to Japan totaled 22.8 million pounds, but sockeye exports to China were a close second at 21 million pounds. It is reasonable to assume that a significant volume of Alaska sockeye is entering Japan after secondary processing in China.

 

Pace of Sales
The Alaska Salmon Price Report tallies sales when product passes outside the processor’s affiliate network. In 2004, frozen H&G sockeye sales through August amounted to 66 percent of that year’s frozen H&G sockeye production. The end-August percentage sold declined to 53 percent in 2005, to 45 percent in 2006 and to 32 percent through August of 2007.

This may be a simple function of sales patterns falling in line with the shifting export pattern. Through 2005, Japan took most of the Alaska sockeye pack immediately after the season. Obviously that has changed. While the relatively light sales volume of 2007 may simply reflect a cementing of the export pattern, an estimated 68 million pounds of frozen sockeye was still unsold at the end of August.

The January – April period is emerging as a more significant sales period for frozen sockeye. In 2004 and 2005, the percentage of pack sold during January - April was 21 – 25 percent. In 2006, the first year of export shift away from Japan, frozen H&G sockeye sales during the period were 28 million pounds, 35 percent of production that year.

 

 

Although production and market conditions have been similar for the last four years, the August 2007 situation is unique for its low percentage of pack sold (32 percent) and for the high volume of unsold frozen sockeye (68 million pounds). In order to move the 2007 pack, sales volume in one or both of the coming sales periods (September – December and January – April) will need to surpass sales volume in May-August. It is quite possible that May-August will prove to be the slowest period of the 2007 sales season.

 

Pace of Sales: Market Implications
Clearly, there has been a major departure from the traditional approach of selling most of the frozen sockeye pack to Japan immediately after the season. The 2006 sales season and the May-August period of this sales season suggest strongly that industry can now expect frozen sockeye sales to span the full year.

In the larger context, this elongated sales season could create volatility in the sockeye marketplace. For processors in a strong cash position, the longer sales season will probably not be a significant issue and may even provide some opportunities. But for processors with cash-flow issues the high volume of unsold inventory represents additional cold storage costs, pack loan payments and exposure to salmon commodity value trends driven by farmed salmon production. These factors create potential for distress sales and related, instability in the sockeye marketplace.