Price formation of the salmon aquaculture futures market

ABSTRACT

This study examines price formation of the internationally traded salmon futures exchange. Analyzing data from 2006 to 2015, the study identifies the co-integration relationship between the spot market price and 1–6-, 9- and 12-month futures contract prices. With exception of the 12-month maturity futures price, the unbiasedness hypothesis is shown to hold, thus evidence of risk neutrality and efficiency among the co-integrated pairs. Further, it is evident that the spot price provides leadership role in the price discovery function for the 1-, 2- and 6-months futures contract. On the contrary, the 3-, 4-, 5-, 9- and 12-months futures contracts provide the expected leadership role in the price discovery function, a case that supports a matured market that can be considered a necessary price risk management tool. The mixed finding is an indication of a maturing or near matured futures market. Analysis of the term structure of futures volatilities reveal that the shorter the length of the futures contract, the more volatility there is. This is because salmon prices exhibit short-term cyclical and seasonal patterns like other agricultural commodities. As such, salmon producers will be better off hedging in far month futures contracts, ceteris paribus.     

RECENT TRENDS IN SALMON PRICE VOLATILITY

The price of farmed Atlantic salmon from Norway has increased in recent years. This new regime follows several years of consistently falling prices. At the same time price volatility has increased substantially. This article models the volatility of salmon prices and establishes empirically that volatility is on an increasing trend. Further empirical analysis suggests that the volatility trend is largely accounted for by the common trend in other food prices relevant to salmon, including meats, cereals, oils and fish meal observed in recent years. Other potentially contributing factors to volatility are also discussed. This includes the role of the 2005 maximum total allowable biomass restriction, the 2006 introduction of the Fish Pool ASA futures market for salmon, the Chilean Salmon crisis and the increasing use of bilateral contracts.     

Competition between farmed and wild fish: The French sea bass and sea bream markets

ABSTRACT

Aquaculture is contributing at an increasing rate to the world seafood supply. The interaction between fisheries and aquaculture is especially important for the seafood market where supply of wild and farmed fish can affect price dynamics. We examine market interactions in the French fresh sea bass and sea bream markets. We test for long-term price parity between farmed and wild products for these two species, applying a bivariate cointegration approach to market delineation. We also conduct the Law of One Price (LOP) test between price series. Our data base consists of monthly domestic price series for fish purchased by French households from 2007 to 2012. Our empirical results show that the fresh fish markets for whole wild and farmed sea bream are partially integrated, yet those for whole wild and farmed sea bass are not integrated. The substantially higher price for wild sea bass relative to farmed sea bass suggests that consumers may be more sensitive to seafood production processes when it comes to higher-value species.     

Developing a new tool based on a quantile regression mixed‐TGC model for optimizing gilthead sea bream (Sparus aurata L) farm management

In this work, a seasonal quantile regression growth model for the gilthead sea bream (Sparus aurata L) based on an aggregation of the quantile TGC models with exponent 1/3 and 2/3, named the “Quantile TGC‐Mixed Model”, is presented. This model generalizes the proposal of Mayer, Estruch and Jover (Aquaculture, 358‐359, 2012, 6) in the sense that the new model is able to describe the evolution of weight distribution throughout an entire production cycle, which could be a powerful tool for fish farm management. The information provided by the model simulations enables us to estimate total fish production and final fish size distribution and helps to design and simulate production and sales plan strategies considering the market price of different fish sizes, in order to increase economic profits. The most interesting alternative in the studied case results in sending all production when 0.25 quantile fish reach 600 g, although on each fish farm it would be necessary to evaluate optimum strategy depending on its own quantile regression model, the production cost and the market price.     

Analysis of Catfish Pricing and Market Dynamics: The Role of Imported Catfish

The producer price of catfish is becoming relatively unstable compared to the trend in previous years, necessitating the need for a complete analysis of catfish pricing and market dynamics. An understanding of the price determination mechanisms in the catfish market and the relationships between producer price, domestic processed price, and import price are important because price variability can result in significant financial losses to the domestic catfish industry. This study used a cointegration procedure to examine the long-run relationships between domestic prices of catfish and imported price. Results from unit root and cointegration tests suggest that there is a long-run equilibrium relationship between pairs of these prices. Results from Granger causality tests and error-correction model estimations suggest that the market for domestic frozen fillets plays a significant role in the price determination of imported catfish. A similar relationship is found between producer price and frozen fillet price. Some significant measures that were estimated include a frozen fillet-producer long-run price transmission elasticity of 0.162, a frozen fillet-imported fillet long-run price transmission elasticity of 3.56, and a producer-frozen fillet short-run price transmission elasticity of 0.322. High levels of fillet prices appear to have influenced the level of catfish imports. As long as distributors and restauranteurs do not see a basis for paying a premium for U.S. catfish products, they will continue to purchase the lower-priced imported catfish and consequently imports will continue to increase.     

Price Volatility in Seafood Markets: Farmed vs. Wild Fish

Price volatility has an important impact on seafood markets and the aquaculture industry. This article investigates price volatility regimes along three dimensions; technology, species and product form. We identify regimes using the Iterated Cumulative Sum of Squares (ICSS), which allow us to compare the volatility found in aquaculture products, as well as comparing against fish-meal and soybeans. The results help identify the level of price risk found within the aquaculture industry across species and products. In addition, we differentiate between technologies comparing wild-caught fish with aquaculture products. The results also help us consider the relative riskiness of aquaculture compared to other industries. The results indicate that in aggregate, price volatility for aquacultured products is substantially lower than for wild. However, this varies substantially between species.     

The estimate of world demand for Pangasius catfish (Pangasiusianodon hypopthalmus)

ABSTRACT

This research described in this article aimed to investigate international market potentials for Pangasius catfish (Pangasianodon hypopthalmus). The monthly export data from Vietnam, which accounts for more than 95% of the global export value, in the period 2007 to 2014, were used to estimate a non-linear Inverse Almost Ideal Demand System of the seven market regions. Prices in all markets are found very inflexible, with own-price flexibilities on ?0.200 to ?0.917, or ?0.419 on average, revealing the option of expanding global production and export without inducing a substantial price reduction. Consumers in all markets except Latin America evaluate Pangasius as a necessary good, indicating that the Pangasius industry is relatively little affected by recessions and booms in the world economy. The major markets are substitutes for each other; therefore, if demand at one market region is reduced, the presence of substitution leads suppliers to find other markets. The results reveal that demand provides stable framework conditions for the Pangasius industry.     

Economic feasibility for producing Imperial Zebra pleco (Hypancistrus zebra) in recirculating aquaculture systems: An alternative for a critically endangered ornamental fish

Abstract

The L46 (Hypancistrus zebra) stands out as one of the most valuable Amazonian species in the international market for ornamental fish and faces a notable problem: the risk of extinction versus the demand for new specimens for aquariums. Considering that breeding in captivity can be a conservational tool for aquatic species and an alternative source for generating income, the objective of the present paper was to verify the economic feasibility of producing H. zebra in recirculation aquaculture systems (RAS), in different scenarios of rearing: residential breeding (S1), mid-size store production (S2) and large-scale production as a supplier (S3). The main profitability indicators used were: net present value (NPV), internal rate of return (IRR) and payback period (PP). The selling price per unit was fixed in US$260.15 (S1/S2) and US$156.09 (S3). The largest investments were made with the acquisition of broodstocks (S1/S2) and property (S3), while the highest costs were with labor (S2/S3) and taxes (S1). Only S1 demonstrated economic profitability (NPV 8.50%?=?US$28,187.85; IRR?=?74.71%; PP?=?1.80?years). Conclusion: the production in this study appeared to be profitable on smaller scales, however the profitability of large-scale production depends upon reducing expenses and increasing the selling price.     

Price cointegration in spatial markets: An application to milkfish markets in Taiwan

Abstract

The objectives of this study are to analyze the interdependent behavior of lead‐lag milkfish price adjustments between vertically‐related markets (from production to consumption) as well as between five major horizontally‐related wholesale markets. Empirical results show that there is a two‐way lead‐lag cointegrating price relationship between milkfish wholesale and retail markets. Since the fish wholesale market cannot completely and quickly assimilate the retail market information, the speed of response of wholesale prices to retail price changes is relatively slow, inducing low pricing efficiency. The Taipei wholesale market appears to cause the greatest leadership impact on the milkfish price formation compared to other wholesale markets in both the long‐run and short‐run. The results also reveal that there is a high degree of integration relationship between the horizontally integrated wholesale markets (Chiayi, Changhwa and Taichung) for milkfish in the southwestern region within a short distance.     

An overview of salmon trout aquaculture in Finland

Abstract

In this case study, we describe the evolution of Finnish salmon trout aquaculture; how salmon trout farming grew as a vital industry, how Finland became the world's leading producer of salmon trout, and how the opening of markets to international competition led to a decline of the industry. The focus is on the continuous interaction between the changing market situation and production decisions. The study reveals the impact of national environmental policy on the competitiveness of the industry. At the moment, the industry is undergoing major structural changes; production has moved to neighbouring countries, and the value chain is concentrated. In future, closer interaction and co‐operation between the actors along the entire fish value chain will be the key factors for success.     

Price integration in the farmed and wild fish markets in Uganda

This paper looks at price integration in the aquaculture and wild-harvested African catfish market channels in Uganda. The issue of integration between the two market channels is important because African catfish has become an important traded species in Uganda with exports to regional markets rising even faster than production, yet limited research has been undertaken to understand price formation in the supply chain. The analysis draws on monthly price data from January 2006 to August 2013, and applies threshold autoregressive approaches to test for the existence of a long-run relationship and price asymmetry and to determine the time path needed for shocks to be transmitted from one market channel to the other. The results show that, over the studied period prices in both market channels are linked in the long-run, implying that farm-raised catfish forms part of the same market as wild-harvested catfish in the country. The findings have strong implications for aquaculture producers and artisanal fishers as they can serve as a basis for more efficient farm management and marketing decisions.     

Economic feasibility of high Omega-3 soybean oil in mariculture diets: A sustainable replacement for fish oil

ABSTRACT

The growth of global aquaculture has put intense pressure on sources of fish oil and fishmeal for aquafeeds. The nutraceuticals industry has added further pressure on fish oils with high Omega-3 fatty acids. GM soybeans could provide substitutes in high Omega-3 soybean oil (STA oil), as well as soy protein concentrate (SPC). This article examines the technological and economic feasibility of substituting STA oil for one-half the fish oil in the diet of Seriola rivoliana, a species often destined for sushi markets. Previous studies have shown that the substitution results in no change in flesh quality or consumer acceptance. We find that the two feed technologies result in essentially identical growth pattern and feed consumption. Economic feasibility depends upon the price of STA oil being lower than the price of fish oil. Based on our market analysis, we estimate that STA oil will enter the market at a price about two-thirds of the fish oil price. The estimated cost savings at these prices are small, a 2.8% reduction in feed costs and 0.9% reduction in total costs. However, the potential global market for STA oil could be as much as 252 thousand metric tons annually, which would require soybean production equivalent to that from 1.63% of current U.S. soybean area.     

DEMAND FOR AQUACULTURE PRODUCTS IN TAIWAN: AN APPLICATION OF THE GENERALIZED MODEL

ABSTRACT

Policy decisions on what aquaculture products to develop require information on consumer demand for cultured species. However, information on the structure of demand for aquaculture products is limited and what few studies there are in Taiwan, where aquaculture is a major industry, suffer from methodological problems. To clear up some of these problems, we used modified nonnested testing techniques and performance forecasting to determine which generalized models could best estimate the demand for Taiwanese aquaculture products. The results of modified nonnested testing of the aquaculture demand system showed that prices predetermined and quantities predetermined could be used to estimate demand. The generalized ordinary demand model was able to better forecast performance than the generalized inverse demand model. We used the likelihood ratio test to discriminate among the four competing models for the generalized ordinary model; the AIDS model could be more suitably applied to the data. A more general model that is able to incorporate different dynamic structures (partial adjustment, first autoregressive, and static). This general framework is applied to the AIDS model. The first autoregressive AIDS model we used to calculate the own and cross-price elasticities for milkfish, tilapia, shrimp, shellfish, and carps found that price elasticities varied across fish type, that some products had high long-run own price elasticities, and that the demand for aquaculture products was largely determined by inertia.     

Behaviour of price transmissions in vertically coordinated markets: The case of frozen black tiger shrimp (Penaeus monodon)*

Abstract

This study analyses the behaviour of the price transmission process for the leading cultured shrimp species, black tiger shrimp (Penaeus monodon), in both forward and backward directions between Thai and Indonesian shrimp packer markets and the Japan Tokyo wholesale market. The bivariate cointegration approach using the Engle‐Granger two‐stage estimation procedure is applied in this study. The results show that Tokyo wholesale prices appear to have stronger backward influences on the formation of overseas contract prices used by Japanese shrimp importers in the Thai and Indonesian shrimp packer markets. In addition, there is a tendency for the speed of price transmissions in the long term to increase with increasing size class (from 26 to 30–21–25 and 16–20 counts per pound) of black tiger shrimp, regardless of estimation specification in the direction of price transmissions and the shrimp country of origin.     

Salmon price volatility: A weight-class-specific multivariate approach

Salmon spot price has been highly volatile and hard to predict since mid-2000s, obscuring the industry players’ planning decisions. ARMA-GARCH and dynamic conditional correlation (DCC) models were employed on weekly data for 1995–2013 to examine the behavior of weight-class-specific prices which are directly relevant for salmon production and risk management. Two periods of different volatility regimes were identified, before and after 2006 when the salmon market was undergoing fundamental changes. Both volatility and conditional correlations increased from 1996–2005 to 2007–2013, and return dynamics became more homogenous across weight classes. This development is conducive to the functioning of the salmon futures and options exchange.     

Forecasting monthly catfish (Ictalurus punctatus.) pond bank and feed prices

Volatility in catfish pond bank and feed prices lead to profit uncertainty in the catfish industry. Analysis of the factors that affect those prices and development of a forecasting model would provide guidance to catfish farm managers. Error-correction models (ECM) based on cointegrating relationships among variables were specified following development of a single-equation ARIMAX model. Factors identified as those that influence catfish price were: lagged value of catfish, feed and substitute product prices, while those that influenced feed price were: lagged value of feed, corn and soybean prices. ECM estimates implied that fish price adjusts approximately 6% and feed price 22% to the long-run equilibrium in 1?month. The analysis showed that it takes less than 17?months and 5?months to correct for long-run disequilibrium for catfish and feed prices, respectively. The ARIMAX model demonstrated a better fit for both in-sample and out-of-sample forecasting for catfish price and had better out-of-sample predictive ability for feed prices.     

Performance of shrimp futures markets as price discovery and hedging mechanisms

Abstract

Granger causality tests revealed leading indicators of shrimp futures prices, implying that futures prices do not reflect all available market information and potentially fail to be an exemplary price discovery mechanism. Trading simulations confirmed that the use of some leading indicators allowed profitable arbitrage in shrimp futures trading. Shrimp futures were deficient as a hedging tool, as well. Correlations between futures and wholesale cash prices were often low, and basis risk rivaled price risk. Lack of liquidity is a likely explanation for shrimp futures’ shortcomings as a hedging tool and price discovery mechanism.     

The Effect of Cooking Conditions on Aluminum Concentrations of Seafood,Cooked in Aluminum Foil

ABSTRACT

Sea bass was wrapped in aluminum foil, then baked, grilled, or pan-broiled at 200°C for 20 min to determine the possible effect of cooking conditions on aluminum leaching. Negligible increase (p >0.05) in aluminum concentration was observed after cooking. The use of different cooking methods did not result in different levels of aluminum leaching from the foil. The aluminum leaching in whole sea bass, mussels, and shrimp was compared with that of skinned/shelled samples after baking in foil, and no significant difference (p?0.05) was determined between them. There was no barrier effect of skin or shell on aluminum leaching from aluminum foil during baking. For all trials, aluminum intake was well below the tolerable weekly intake value. The target hazard quotient (THQ) was below 1, indicating insignificant health risk. Negligible leaching of aluminum could be associated with the high-protein, non-acidic nature of seafood, as well as the absence of salt or organic acid during cooking.     

Harvest,trade and conservation of the Asian arowana Scleropages formosus in Cambodia

• 1. The worldwide trade in aquarium fish is a multi‐billion dollar industry. One of the most popular and expensive species traded is the Asian arowana Scleropages formosus. As a result of over‐harvesting for the aquarium fish trade, S. formosus is now endangered and commercial international trade in the species is prohibited under CITES. Despite this, very little is known about S. formosus in the wild.
• 2. Interviews were conducted with 62 local villagers at four sites in Koh Kong province, south‐west Cambodia, to obtain information on the reproduction, historical and current harvest and trade, and population trends of S. formosus.
• 3. The spawning season of S. formosus in Cambodia begins towards the end of the dry season (March–April) and is approximately 3 months in duration. Each male mouth‐broods an average of 30 juveniles. Harvesters target S. formosus fry and juveniles, and typically kill or frighten brooding males into releasing their offspring in order to harvest them.
• 4. The prices obtained by harvesters for S. formosus has been increasing since collection began, and currently averages $US11–13 per juvenile. After collection, fish are transported through a series of larger towns, most ultimately bound for Thailand. The current number of S. formosus harvested from the wild in Cambodia is almost certainly highly unsustainable, with all respondents indicating that local S. formosus population abundance had declined dramatically in recent years. It is also likely that a number of populations have already become locally extinct.
• 5. Strengthening legislation to protect the species within Cambodia, increasing enforcement of cross‐border trade, and an investigation into alternative low‐impact income generation opportunities for local communities is vital. There is also an urgent need to gather detailed information on the distribution, population abundance and threats facing S. formosus in Cambodia, and in other countries throughout its range.

Copyright © 2008 John Wiley & Sons, Ltd.