Optimistic outlook for salmon prices

Christian Pérez For Chilean coho, production estimates are considerably lower and prices should remain relatively firm, though recent reports of much higher than expected harvests of competing sockeye may push prices down in the second half of the year, according to a recent report published by FAO Globefish. Prices After reaching record heights in late-2013 and early-2014, prices for Norwegian salmon dropped back into the mid-40s and remained stable for the first four months of the year as a tight market balance was sustained. In early May, however, the effects of a mild winter began to be felt as the relatively rapid growth of salmon in the pens forced Norwegian farmers to harvest earlier than usual to keep below Maximum Allowable Biomass (MAB) limits. With more fish available, particularly bigger sizes, prices began to fall, and continued falling up until early July, with the weighted NASDAQ salmon index almost hitting NOK 30 (US$~4.72) per kg for fresh whole Atlantics before the downward trend was reversed. Processors were quick to take advantage of the much needed drop in raw material costs and upped purchases. Meanwhile, Chilean prices in the US and Brazil also dropped somewhat in July after good early year performances, although supply shortages have ensured Coho prices in Japan have so far remained stable at good levels. Markets The Norwegian Seafood Council recently restated its belief that the relentless growth of global demand for salmon is not likely to let up in the foreseeable future. Public awareness of salmon as a healthy diet choice is spreading, particularly amongst the emerging middle classes in Asia and Latin America. With this core consumer demographic expanding, competition for an already limited resource is only going to increase. Brazil, in particular, is growing at a rapid rate, which may prompt Chilean exporters to direct their efforts proportionally more towards this logistically more convenient market in the future. This will in turn leave supply gaps in other major markets such as the US and China, which represent attractive opportunities for European producers. However, with only a limited supply of salmon, and Chile now seeking to slow production growth substantially to cut costs and boost profits, the possibility that salmon will eventually become more of a niche product than a commodity must be acknowledged. France It is increasingly clear that French consumers are put off by the exceptionally high price of salmon. Volumes are dropping, and cod has become more popular than salmon as the seafood choice in French baskets. In particular, fresh whole salmon imports are down substantially this year. However, it should be recognised that this is a price effect rather than reflecting a weakening of core demand, evidenced by the increase in total imported value despite lower volumes. As such, the recent drop in price levels to the low NOK 30s may kick start demand once again, as processors seize the opportunity to up their purchases of raw material. Germany In contrast to France, the German market has yet to be significantly weakened by the high price level. German consumers are eating more seafood, and although discount chains still hold the biggest share of the salmon retail market, there is increasing demand for quality fresh products. Indeed, imports of both fresh whole Atlantic are up considerably this year, unaffected by higher prices, and Norway has been the main benefactor. Imports of frozen fillets also rose, with Chile continuing to increase its share of this segment despite retreating from other major EU markets such as France. Meanwhile, smoked salmon imports, mainly from Poland, have fallen slightly in terms of volume, but high prices meant a small increase in total value. The Russian Federation Though mixed tendencies are observed in the Russian market for the domestic catch, production and import of salmon, the market is generally expected to weaken in 2014. According to the Federal Agency for Fisheries in Russia, the catch of Pacific salmon species (mostly pink and chum) in the Russian Far East has so far this year been good. The Pacific salmon season has began on May 28, 2014 in the Far Eastern region and by June 17, 2014, the catch had reached 6,200 tonnes, which is twice as much compared with the corresponding period of the fishing season in 2012. For imports of Atlantic salmon, Norwegian supplies have decreased considerably in the first four months of 2014. According to the Norwegian Seafood Council, imports of Norwegian salmon to the Russian market fell by 18% to 28,000 tonnes, compared with the same period of 2013. In value terms, the decrease was 4.5% to USD 210 million. Russian imports of sea trout from Norway also deceased notably: by 12.4% to 8,000 tonnes and by 2% to USD 60.3 million. Decreasing volumes of Norwegian exports to the Russian market were influenced by a combination of high prices and the weakening of the RUB.   Russian farmers produced 10,000 tonnes of salmon in the Barents Sea. There are currently two companies farming Atlantic salmon in The Russian Federation, and the second company expects its first harvest of 3,000–4 000 tonnes in 2014-2015. USA Chile continues as the US main salmon supplier after exporting 35,049 tonnes during January- March 2014, which represents an increase of 15.3% compared to the 30 411 tonnes shipped in the same period of 2013. In terms of value, an increase of 51% was registered (USD 387 million against USD 257 million). Canada appears in second place despite a sharp drop of 47% in volume was registered. During the first three months of 2014, the country exported 11 857 tonnes worth USD 109 millions. In terms of volume, China appears very close with 10 617 tonnes. Japan Low inventories in Japan, and lower production in Chile has seen prices for frozen Coho reach impressive heights on the Japanese market. However, with buyers reluctant to pay current prices and US and Russian sockeye harvests now exceeding expectations by some distance, there may well be a drop in the second half of the year. Demand for frozen fillets is also good, and prices are approximately stable. Chile has substantially increased its share of this segment in 2014, while Norway’s share has fallen. Outlook Supply of farmed Atlantics has been somewhat higher than forecasted so far this year, with both Chilean and Norwegian harvests above predicted levels. In addition, wild harvests have been unexpectedly good this year. However, supply is beginning to tighten once again and prices have returned to their upward trend. In general, the market appears to have considerable confidence in the capacity of current demand to absorb current production in the medium term, while the predicted cutback in production growth for 2015 should see another good year for producers. Chile in particular is expected to reap the benefits of a widening gap between supply and demand as the US and Brazilian markets continue expanding. Production costs remain a challenge to be overcome in both Chile and Europe, but calls for consolidation and regulatory prudence show that the industry is intently focused on ensuring maximum profitability in the years to come. Future development of the salmon sector depends on three major factors. The first is the growth trajectory of salmon supply, which, in its current form, is subject to multiple constraints. Most importantly, open pen farming is geographically limited in terms of potential sites, but alternatives are still extremely high-cost, and commercially viable examples are generally competitive only through targeted marketing of a niche product. The second factor is the ability of the industry to keep production costs down, primarily those relating to feed and disease control. Global demand for fish feed is growing at over 11% a year, meaning the salmon industry will face stiff competition for a limited resource, while disease represents an ever-present and constantly evolving threat. The third key factor is on the market side, specifically the extent of demand destruction if the high price level is to continue in the long term. Evidence of this has already been seen in some important markets such as France and The Russian Federation, but it appears, for now at least, that growth in newer markets is more than sufficient to support current high prices and the resulting profits.