Seafood: Salmon price - 40 is the new 30!
Seafood: Salmon price - 40 is the new 30!
During recent weeks we have taken an extensive dive into the demand picture in key salmon markets. We conclude that key markets are able to absorb salmon at higher prices than we previously thought. As long as supply is more or less capped (next two to three years), we expect a level of NOK 40-42 per kg to represent an equilibrium price in the market.
Markets in decline: Russia and France most price sensitive
Salmon spot prices have been high for 15 months now, fuelled by lower harvesting growth plus a favourable currency situation. The key question and concern has been the demand destruction issue. Will consumers flee from salmon because of the high prices? In some markets there are certainly signs that this has happened. The Russian market has switched from Atlantic salmon to less expensive alternatives (trout), while maintaining salmonid consumption. The French market has also declined owing to the high prices and a negative TV programme on salmon.
Other markets – don't care much!
The German market is normally price-sensitive. During 2013, leading hard discount retailers rolled out fresh salmon products, boosting salmon consumption. Private consumption is growing at twice the rate in France and the unemployment rate is also substantially lower. The size of wallets and so the climate for spending is better. The same applies to the UK and the US, where salmon consumption is rising and macroeconomic indicators are improving. Other markets boosting salmon imports are Poland and the Baltic nations, mainly as a raw material for the smoked salmon industry. At a breakeven price of NOK 44 (Morpol, Q4 2013), prices in the low NOK 40s act as demand triggers for these buyers. Global supply growth is expected to be 5% in 2014, declining to 1% in 2015. This is not sufficient to meet the demand for salmon that is firm in key markets.
Companies and rating
Given this market balance, which we expect to last another two years, a fair estimate for salmon price equilibrium seems to be NOK 40-42 per kg. This also means EBIT margins of NOK 10-15 per kg for an average Norwegian fish farmer. We view our current salmon price estimates as too conservative, and raise our 2014E-15E salmon prices to NOK 42 (from NOK 40). We also estimate a 2016 salmon price of NOK 40 per kg (up from NOK 35).
