Supply of farmed Atlantic salmon this year is expected to be higher than previously forecasted, but speculators appear to be confident in the capacity of the market to absorb theses volumes on the current demand trajectory.

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.

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 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 USA 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. 

Norway

Norwegian producers have been enjoying good margins and high prices for some time now, and the first quarter of 2014 was no different. Indeed, the total value of salmon exports for the first three months of 2014, at NOK 10.7 billion, demonstrated the highest export value ever. This figure is 32% higher than compared with the first quarter of 2013, while volume for the same period was up by only 3%. The average export price for the first quarter was NOK 47.6 for fresh whole Atlantics, some 31% higher than in 2013, reflecting the tight balance between low supply and firm consumer demand.

Exports to the EU, the major source of revenue for the Norwegian industry, were up 31% by value for the first quarter, and 3% by volume. Total volume share of the EU was 69%. There was a notable shift in relative shares amongst Norway’s major partners, with France and the Russian Federation, the second and third largest markets after Poland, importing 19% and 12% less in volume terms respectively. This points to an adverse consumer reaction to high prices in these markets, while Norway continues to face certain market access difficulties in the Russian market. Export volumes to almost all other EU markets, particularly the Netherlands and the UK, increased in the first quarter.

It is the non-traditional markets where Norway must look for expansion. Export value to Asian markets in the first quarter was up by 49% and volume by 14%, while export volumes to the USA doubled with higher prices pushing the value up by an impressive 162%. The USA is still a relatively small market for Norway, importing 6 400 tonnes in the first quarter of 2014, but with Chile’s attention increasingly drawn towards the promising Brazilian market and Canadian supply tightening, there appears to be an opportunity for Norway to expand its share considerably by focusing on the higher quality fresh Atlantic segment.

Even as the good times look set to continue in the short to medium term, the Norwegian industry is already looking to the future and the challenges it will bring. Sea lice levels, particularly in the south of the country, have increased relative to last year, and farmers will want to ensure that treatment costs do not eat too much further into profit margins. The extent to which producers will be able to take advantage of proposals to increase the MAB by 5%, given the prerequisite of meeting much stricter sea lice requirements, remains to be seen. On the market side, China remains firmly in the sights of Norwegian exporters, who will not want a tense trading relationship to continue to inhibit their access to a rapidly growing, and potentially enormous, Chinese market.

Trout

Despite the understandable focus on salmon, the trout market also continues to quietly break records. The first quarter of 2014 saw a total of NOK 632 million exported, a record value. Volumes were 3% down, with the increase in value entirely attributed to soaring prices, particularly for frozen and fillet products. The Russian Federation is the major market for Norwegian salmon, taking a 50% share of the total export volume. However, exports to the latter market were down 16% in the first quarter, while Japan imported 54% more than in 2013.

Chile

The Chilean salmon industry’s strategy for disease mitigation and profit maximization appears to be working, as the majority of stock-listed companies turned last year’s losses into profits during the first quarter of this year. Indeed, during the first quarter of 2014, salmonids exports (including fish oil and fishmeal) had increased notably by 38.4% in value in comparison with the same time period last year, although a 13.9% fall in volume was registered. This reversal of fortunes has taken place thanks to a combination of cost reduction and strong price performance in Chile’s major markets as widespread demand growth into new markets such as China, Brazil, the Russian Federation and the Republic of Korea continues. Chilean profit margins are still below that of the Norwegian industry, although the outlook remains extremely positive with rising prices expected to remain stable in the second quarter, despite the recent price drop and emerging disease concerns.

According to IFOP, Atlantic salmon was the most exported species in Chile throughout the first three months of the year with 87 236 tonnes exported valued at a total of USD 739 million. In terms of quantity, a 20.6% increase was registered; regarding value, an important raise of 69.4% was noted. The level of Atlantic salmon harvests was 152 200 tonnes, up 17% compared to 2013.

Coho salmon was the second most importance export species, with 52 928 tonnes traded (22.9% decrease in relation to 2013), valued at USD 317 million. In the case of rainbow trout, exported volume in the first quarter reached 16 839 tonnes, demonstrating a 57% decrease in comparison with 2013. In terms of value, an 18% fall was registered, a consequence of the low international prices.

The total salmonid harvest recorded in the first quarter in Chile was 240 500 tonnes, an increase of 2.5% compared with the same time period in 2013. According to the Report of Fisheries and Aquaculture of the Undersecretary of Fisheries and Aquaculture, this species made up 76% of the total accumulated national fish harvest.

In recent news, Chilean, Canadian and Norwegian scientists have announced that the complete genome map of Atlantic salmon has now been deciphered. The Minister of Economy, Development and Tourism, Luis Felipe Céspedes, reported this a big step in moving towards sustainable production of such an important species. Proponents argue that this development will allow for higher productivity in the aquaculture sector and aid in improving the nutrition of salmon, treatment of their diseases as well as creating better conditions for productivity and growth.

UK

In Scotland, there are reports of high sea lice levels, though the UK’s excellent performance on export markets continues. So far this year, exporters have managed to increase volumes considerably while maintaining prices just above the GBP 5 per kg level. Similar to Norway, the UK has taken advantage of US demand outpacing supply from Chile and Canada by making up the shortfall in the fresh whole and fresh fillet segments. Another positive development for the UK is the recent signing of an MOU with China, which is intended to strengthen trading relations and ensure both countries are continuously aware of import and export requirements.

On the market side, imports of fresh whole Faroese Atlantics have continued at approximately comparable quantities to last year. Prices in the first quarter were relatively higher but dropped somewhat in April. Meanwhile, lower prices saw increased imports of canned salmon from the US. Overall, consumer demand for salmon is good in the UK, with more smoked salmon purchased at higher prices in the first five months of 2014. 

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 USA 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.

The Russian farming output of Norwegian salmon amounted to 10 000 tonnes produced by one company 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 focussed 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.