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Higher than expected supply growth in 2019 but sea lice issues continue

02/12/2019

Global production of farmed Atlantic salmon is expected to rise by around 6.5 percent in 2019 according to the latest estimate of 2.6 million tonnes, which would be the highest yearon- year increase since 2014. However, reports out of Chile point to mounting challenges with sea lice.

Production

Atlantic salmon

In Norway, harvests in the first half of the year were 4 percent above the equivalent period in 2018. Volumes picked up significantly in the third quarter, catching the market somewhat by surprise. In Chile, production in the first six months was 9 percent above the first half of 2018 despite ongoing difficulties related to a rise in sea lice levels. In Scotland, the second largest European producer, salmon farmers are driving a strong recovery after an exceptionally poor year in 2018. The Faroe Islands sector is also seeing strong volume gains in 2019.

The algal bloom that killed 8 million salmon in Northern Norway early this year has yet to have a significant impact on harvest volumes, as reports suggest the majority of mortalities were amongst the younger generations of fish. Sea lice management has represented a substantial proportion of Norwegian salmon farmers’ costs over recent years, but in 2019 sea lice incidence appears to have stabilized at 2018 levels. Norwegian authorities have now turned their attention to reducing the number of escapes, after figures show 2019 is on course to be the worst year for farmed escapes in
eight years.

Reported sea lice levels at Chilean farms spiked during the first half of 2019, including in regions that traditionally do not have serious issues with sea lice. The Chilean government is now actively implementing incentive schemes to encourage salmon farming companies to introduce preventive management plans and non-pharmacological treatments to control and reduce the incidence of these costly parasites. It is now becoming increasingly clear that previous treatments are losing their effectiveness and aquaculture companies and other stakeholders are combining their efforts and resources in an attempt to develop new approaches and technologies to address the problem.

Elsewhere, production growth has generally been strong. Industry development is also continuing in Iceland, the Russian Federation and Canada, driven by the growing global appetite for salmon and the associated upward price trend.

Other farmed salmonids

In Chile, coho salmon harvests in the first half the year point to significant volume growth for the year. Rainbow trout production is also projected to rise after a 20 percent year-on-year increase for the same period. Coho salmon and rainbow trout make up around 11 percent each of the total Chilean salmonid harvest.

In Norway, harvests of farmed trout have been about 13 percent higher this year compared with 2018, and biomasses remain substantially above last year’s levels.

Wild salmon

In the Russian Federation, wild salmon catches in the Kamchatka peninsula slightly exceeded preseason forecasts this year but the total harvest was around 40 percent below 2018, as a result of the reduction in pink salmon returns that is typical for odd years. Compared with 2017, the Russian Federation harvest of 378 000 tonnes marked an increase of some 56 percent. In Alaska, an exceptionally good sockeye salmon run in Bristol Bay was offset by pink salmon catches that came in below forecast and at 11 percent below 2017. Taking Russian Federation and Alaskan catches
together, the total wild harvest for 2019 was around 13 percent below last year and 4 percent below 2017.

Markets

Despite deteriorating economic conditions in many world regions due to trade tensions and geopolitical uncertainty, global salmon consumption continues to rise. Demand remains strong in both the traditional large markets of the United States of America, the EU28 and Japan and in the new markets of Latin America and Asia. While salmon producers lead the aquaculture industry in terms of technology, the other end of the salmon supply chain continues to make major contributions to product and marketing innovation in world seafood markets. An increasing desire for convenience, demand for freshness and an ever-evolving understanding of sustainability are some of the most important consumer trends driving market development. Farmed Atlantic salmon remains by far the dominant species in terms of market share, but demand for salmonids in general and the limitations on Atlantic salmon production growth have seen marketers increasingly focused on the opportunities presented by trout, coho salmon and the wild caught species.

Chilean producers of coho salmon have historically been dependent on Japanese buyers, who account for some 85 percent of its export sales. More recently, however, industry stakeholders have become increasingly aware of the need to diversify markets and are exploring options for marketing the species more effectively in the EU28 and in United States of America. Coho salmon have reportedly proved popular with foodservice buyers and retail, but there are some remaining challenges related to its seasonality that need to be overcome. While Japanese sales consist of frozen fish, US buyers are looking for fresh coho salmon, which at present can only be shipped during the last four months of the year. To meet this demand, exporters are testing demand for ‘refreshed’ fillets, which are defrosted frozen fillets.

Among the wild caught species of salmon, pink and sockeye are the most plentiful. A large proportion of Alaskan pink salmon is traditionally sold in canned form on the North American markets and in Europe, particularly in the United Kingdom. However, this consumer demographic is aging and buyers are increasingly interested in fresh and frozen fillets, as well as headed and gutted product for processing. In the Russian Federation, demand for domestically caught pink salmon is reportedly strong, with a variety of preserved product forms on offer. The species is one of the cheapest seafood options on the Russian Federation market. Sockeye salmon caught by the Russian Federation is generally exported to Japan and the Republic of Korea, where it is supplemented by Alaskan catches.

Trade

Increased production of farmed Atlantic salmon in 2019 has been the main driver of an overall increase in salmon export volumes in the first six months of the year. These additional volumes, combined with the demand dampening effect of global economic headwinds and a strong US dollar, have led to a drop in US dollar traded prices and export revenue growth has slowed for many producers.

In general, import growth rates in emerging markets in East and Southeast Asia, the Middle East, South America and Africa are significantly exceeding those observed in the more mature developed markets. Although aggregate global demand is still relatively strong, salmon traders across the world have inevitably become more conservative in the shifting global political environment increasingly characterised by threats, instability and uncertainty.

In the United States of America, the effects of the trade war between China and the United States of America on salmon trade has been less direct than in the case of some other seafood commodities, given that the Alaskan salmon industry has been protected to a large extent from US and Chinese tariffs, due to an exemption for salmon raw material that is exported for processing and re-imported.

According to National Oceanic and Atmospheric Administration (NOAA) statistics, strong consumer demand underpinned 6.4 growth in US salmon import volume during the first half of 2019, but pricing pressure saw total import value increase by only 1 percent to USD 2.16 billion over the same period. In Norway, the world’s largest salmon exporter, a weakening of the Norwegian krone versus the US dollar in the first six months of 2019 translated into an increase in NOK salmon export prices for the review period. According to the Norwegian Seafood Council (NSC), Norway exported 5 percent more in volume terms and 6 percent more in NOK terms in the first two quarters of the year. Cumulative salmon export revenue for the period came to NOK 34.6 billion (USD 4.02 billion). Solid demand in Norway’s core EU28 markets has been the foundation for Norway’s continued export growth, but the most rapid expansion has been in Asian markets. Although Norway has not yet succeeded in securing a Free Trade Agreement with China as some of its competitors (e.g. Chile) have done, what was previously a very poor trade relationship has improved somewhat and an increasing number of Norwegian companies are now able to access the Chinese market.

Chile saw export revenue grow around 5 percent in the first six months of the year in US dollar terms, driven by steady demand from its key markets in the United State of America and Japan. In Brazil, however, economic slowdown has meant a corresponding weakening of demand for Chilean farmed Atlantic salmon.

The world’s third largest producer of farmed salmon, Scotland, posted considerably more impressive results for the first half of 2019, with total export salmon sales increasing 25 percent to GBP 319 million compared with the same period in 2018. It should be noted, however, that this growth is something of a rebound from a poor production year in 2018.

Prices

Price trends for farmed salmon in early 2019 were comparable to the same period 2018, although they diverged somewhat in the second quarter. While Norwegian export prices at Fish Pool hit a peak of USD 9.37 per kg in week 19 of 2018, higher volumes pushed prices down to USD 6.83 per kg in the same week of this year. Although there was a brief recovery in early summer, a steep downward trend resumed in the third quarter for both Norwegian and Scottish salmon. US import prices of fresh fillets of Chilean Atlantic salmon were more stable year-on-year, with the average unit value of USD 12.02 per kg for the first half of 2019, around 3 percent higher than the same period last year.

Outlook

According to the most recent productions, Norwegian harvests of Atlantic salmon will rise by around 4 percent year-on-year in 2019. In Chile, despite good production growth in the first half of the year, increasing pressure from sea lice means full year estimates may be lower. Elsewhere, Scotland and the Faroe Islands are expected to see year-on-year increases of around 20 percent in harvests.

Overall, global growth in farmed Atlantic salmon production in 2019 is now expected to be around 6.5 percent. Harvests of farmed coho salmon and trout are also expected to rise significantly. End of year demand should lift salmon prices somewhat from what are relatively low levels at the start of the third quarter, with Fish Pool forward contracts for December 2019 trading at NOK 60 (USD 6.39) per kg. Supply growth of around 4–5 is forecast for Atlantic salmon in 2020, but the ability of the Chilean industry to bring the biological situation under control will be an important consideration. In the longer term, the inherent growth limitations of traditional open net pen aquaculture will continue to drive development of alternative regions and methods for salmon production.

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