Pessimism grows in Chile amidst antibiotic concerns and falling prices in major markets.

The forecasted growth in farmed Atlantic production in Norway this year is marginally below last year at around 4%. However, so far, significantly higher volumes have been absorbed by the markets, leading to expectations for a tighter supply situation in the second half of 2015. In Chile, harvest volumes have shown a sharp decline compared with last year, but a weak economy in Brazil, volcano eruptions, customs strikes and a buyer backlash over higher antibiotic use have complicated operations and kept demand low. Meanwhile, the wild salmon markets are bracing for what are expected to be abnormally large global harvests for multiple species, boosting supply further in what is already a buyer’s market.

Prices

For the majority of the first half of 2015, higher harvests have kept prices for farmed Norwegian Atlantics fluctuating at levels consistently somewhat below the same period last year, but an improvement is being seen as we enter the third quarter. In early June, fresh whole Atlantic prices were up year-on-year for the first time in 2015 and grew further to about NOK 42 per kg for 3-6 kg fresh. FishPool NOK forward prices were revised upwards as the outlook for the rest of the year improved. For Chilean salmon on US markets, however, the situation is significantly worse. SalmonEX puts Chilean fresh fillet prices for export to the USA at USD 3.6 per lb, the lowest level seen since early 2013. Chilean export prices for fresh whole Atlantics to Brazil and frozen Coho to Japan have also been lower than last year, particularly in the case of Brazil.

Norway

The first half of 2015 were characterized in Norway by higher water temperatures and low fish mortality, translating into fast growth rates and increased production. Harvests were also dominated by larger fish, pushing down prices for that segment. As we enter July, however, there are reversals taking place as the water temperature has been below average when comparing with the last two years and farmers switch to a new generation of fish for harvesting. Consequently, harvest volumes, average harvest weights and standing biomass are all down and there should be less fish coming out of the water for the remainder of the year.

On the market side, the general picture for Norway’s salmon exports is of higher volumes and revenues and slightly lower prices. For the first five months of 2015, the Norwegian Seafood Council (NSC) reported a 7% increase in total export volume to 408 000 tonnes and a 5% increase in total export value. The EU continues to absorb relatively more of the additional volumes with a total of about 309 000 tonnes for the first five months, approximately 16% more than last year. Prices have inevitably suffered from ramped up volumes, and the corresponding increase in revenue for the same period was just about 8% at NOK 13.3 billion.

Amongst the secondary markets for Norwegian salmon, growth in Asia and the USA is continuing in terms of volumes, but there has been a price fall to these destinations. Exports to the USA have been helped by a favourable exchange rate, and grew by some 36% in volume terms up to May inclusive, with prices for the fresh chilled segment down but frozen and fillets slightly up. In Asia, the volumes up, prices down description is accurate for almost all markets except for Japan, where marketing efforts and a stronger yen versus the krone has resulted in higher volumes and better prices for fresh whole and fillets.

Margins for Norwegian salmon companies are being supported by continuing good price levels, although they are down somewhat in comparison with last year. On the cost side, there are positives in the form of a large reduction in PD cases this year, though reports from South America suggest El Niño could again affect anchoveta stocks and push high fishmeal prices even higher.

Trout

Market conditions for the Norwegian trout industry remain challenging following the Russian import ban. NSC figures put the total export value for the first half of 2015 down by 22% at NOK 962 million. On the positive side, however, exports to Poland and the Republic of Belarus have more than doubled compared with the first half of 2014.

Chile

In 2014, there were some positive developments in the Chilean salmon industry. Lower mortalities as well as increases in harvest weights and performance were recorded. Furthermore, in terms of exports, the sector achieved historical record earnings in 2014, with Chile benefiting from the Russian ban on imports from Norway.

2015 is not off to as strong of a start. According to the latest Report on Fisheries and Aquaculture released by Subpesca, salmon outputs demonstrated an overall drop during the first quarter of 2015. A considerable fall in the Atlantic salmon harvest was recorded at 112 600 tonnes, 28.6% less compared with the first quarter 2014. Coho salmon harvests reached 14 800 tonnes, 67% lower than the same period in 2014. Trout had the most significant fall during the first quarter of 2015 at 87.4%, with production totaling only 5 600 tonnes.

For all of 2015 however, forecasts predict that Atlantic salmon and coho numbers should remain similar to 2014, but a sharp fall in all indices of trout should be seen. Some experts estimate that Chilean salmonid harvests during 2015 could range between 800 000 and 840 000 tonnes, with Atlantic salmon providing up to 70% of the volume. Given this, any new developments will be governed by what happens in this commercial sector. Predictions for Atlantic salmon prices for the remainder of 2015 are mixed. The director of SalmonEx, Arturo Clément, stated in one interview that prices “…should rise at least for Atlantic salmon as production volumes are lower this year”. However, Carlos Palma, a salmon trader, told the same website that the Atlantic salmon crops could increase in Norway and slightly in Chile, which will “…increase the overall supply and, again, put pressure on prices.” (Source: Aqua.cl)

UK

After a record-breaking year in 2014, Scottish salmon producers have not fared as well so far in 2015. Prices are down and last year’s main driver of export growth, the USA, has shifted towards other producers. Canada has especially ramped up supply of fresh whole Atlantics to the US market, the segment which UK producers have been targeting. The French market, however, continues to favour Scottish salmon and its share in UK salmon exports is increasing.

On the demand side, salmon remains the number one fish consumed in the UK, with an increasing preference for fresh product emerging. Prices are down however, and discount retailers continue to increase their share of the UK market. The emergence of a lucrative Russian market for Faroe Islands producers has also seen Faroese origin imports into the UK fall drastically this year and total import volumes for the first four months of 2015 were some 20% down compared with last year.

Markets

As in many sectors, sustainability remains a prominent issue in the global salmon industry today. In the USA, consumer concerns over the high antibiotic use on Chilean farms has led some major retailers to turn to other supply sources, particularly Norway. This once again underlines the need to develop policies and marketing strategies to address the concerns of consumers in regards to sustainability and to minimize the gap between reality and the perception. This is the aim of the Global Salmon Initiative (GSI), an initiative whose membership includes many of the world’s leading farming companies. GSI recently published its first sustainability report. Meanwhile, wild salmon processors in Alaska are in the midst of negotiations with the Marine Stewardship Council (MSC) with the aim of rejoining the certification program, reflecting the increasing demand for certified products, particularly in Europe.

The Russian Federation

Atlantic salmon remains one of the most demanded fresh fish in large retail chains in the Russian Federation. However, its high price has moved it into the category of premium fish species, whereas prior to the food import ban, the product was perceived as being affordable to a wide-range of consumers. In addition to the falling supply volumes, the market saw a substitution of fresh salmon from Norway by frozen salmon from non-sanctioned countries, leading to a deficit of Atlantic salmon for both processing companies and consumers in Russia.

According to data from the Russian Customs Service, Russian imports of fresh Atlantic salmon totaled only 2 814 tonnes during the first quarter of 2015, compared with 19 470 tonnes during the first quarter of 2014. Replacing Norway, the Faroe Islands took the lead for Russian imports, providing the entire volume of fresh Atlantic salmon. In terms of frozen Atlantic salmon, Chile is currently the largest provider (supplying 89% in the first quarter), with the Faroe Islands through the Republic of Belarus supplying additional smaller volumes. In the first quarter of the previous year, Chile was only responsible for 44% of the supply of frozen Atlantic salmon into Russia.

On 24 June, the President of Russia signed a decree for the prolongation of the food embargo for one more year after the decision of the EU commission to extend the sanctions until the end of January 2016. Thus, the first quarter 2015 trends for Atlantic salmon on the Russian market will continue.

France

After an extended period of stagnating demand on the back of negative publicity and high prices, the salmon market in France is showing some signs of recovery. As in the UK, the rising demand is particularly evident in the fresh segment, where falling prices have stimulated consumer interest once again. Norway, the UK and Poland (smoked salmon) are all benefitting, although Chile is once again losing ground in the French market this year. As with all other EU markets, however, the ongoing Greek debt crisis is a potential risk to economic stability.

Germany

In another example of the potential market impact of damaged consumer perceptions, in June the NSC warned the industry over the possible backlash following negative coverage in the German media relating to the feed used in salmon farming. Earlier in the year, German consumer demand appeared to be softening, with fresh whole Atlantic imports around 29% lower in volume terms during the first three months of 2015, despite lower prices. The fresh fillet segment, however, is performing considerably better, with a 49% increase.

Japan

A weaker yen and leftover inventories is dampening demand for Chilean Coho salmon in Japan, prompting Chilean exporters to seek new markets. Imports of Alaskan sockeye are significantly higher this year, however, as supply is plentiful. US exporters will be seeking to exploit this opportunity to re-establish their position in the Japanese market. Meanwhile, there are ongoing marketing efforts in Japan to generate more demand for seafood among youth, who have been favouring terrestrial protein sources.

Outlook

In Norway, colder temperatures, smaller fish and lower biomass all point to relatively tighter supply for the remainder of 2015 and improved prices. As usual, prices will remain under pressure during the harvesting period at the end of the summer, but end-of-year demand will push them upwards in the fourth quarter. Looking further into the future, overall supply growth for Norwegian salmon is expected in 2016 at around 4-5%.

With the Russian ban extended for another year, stable demand in the EU is a must if prices are to be maintained. According to the FishPool forward price consensus, NOK prices for 2016 will average out at approximately NOK 40 per kg. In Chile, approximately flat production is expected this year, followed by an estimated 6-8% drop in 2016. In addition, Chile must overcome weakening demand in three of its core markets, the USA, Japan and Brazil. China is a possible new target. On the cost side, savings on lower mortality rates in both Chile and Norway are likely to be wiped out by any further increase in fishmeal prices resulting from El Niño.