The report analyses the market situation until June 2017

Global supply of farmed salmon has been somewhat lopsided this year, with the relative scarcity of the first half of 2017 contrasting with a post-summer surplus supplemented by better than expected wild catches. However, any price relief experienced by consumers and intermediaries is likely to be temporary.

Supply

Norway

The spectacular performance of Norwegian salmon farming companies over recent years continued into the first half of 2017, supported by prices that began the year well above the equivalent period in 2016. Spiking production costs and reduced harvests have so far been more than offset by the inflated revenues that the sustained high price level has been generating. Since the start of the second half of the year, however, a tight supply situation has been steadily easing on the back of increased volumes coming out of Europe's top two producing countries, Norway and the United Kingdom. Towards the end of the third quarter, the wider availability of fish had driven down Norwegian export prices to a 20-month low, with the Fish Pool Index dipping just below NKr51 (US$6.51) per kg for week 37.

The mid-year report of the Norwegian Seafood Council (NSC) clearly underlined the effect that the price level has had on Norwegian salmon exports. The total volume exported in the first 6 months of the year was 451 000 tonnes, 1 percent below the same period in 2016. In contrast, total value reached NKr31.5 billion (US$3.7 billion), a 13 percent increase and an all-time record. Growth has not been split equally between export destinations, however, and there has been an ongoing trend evident in Norway's export figures that demonstrate that the share of volume accounted for by the core EU28 market is diminishing. Instead, high-priced salmon is being directed to faster growing markets where demand is more robust, such as the United States of America and, increasingly, Asia. According the NSC, all Asian markets combined imported 15 percent more by volume and 27 percent more by value in the first half of 2017, pointing to rapid expansion of the key salmon-buying demographic. In the US market, the growth in Norwegian-origin imports is more the result of a shift in consumer preferences and strong economic fundamentals.

Despite the softening of prices in the second half of 2017, market expectations are still positive for the longer term. Full-year 2018 forward prices at Fish Pool are holding steady at the NKr62 (US$7.78) mark and have even risen marginally for Q4 2017 in anticipation of a strong recovery in prices when seasonal demand kicks in. Reduced dependency on a large but relatively slow growing EU28 market is also a positive development for the Norwegian industry, both because of the greater potential for growth and because of the risk mitigation it entails. On the cost side, although some farmers are reporting close to historic highs this year, companies are still seeing scope for efficiency gains, particularly through vertical integration strategies.

In terms of farmed trout, depleted stocks in Norway over the review period translated into severely elevated price levels and reduced export volumes in the first half of 2017. NSC reported 16 000 tonnes exported over the latter period, worth NKr1.3 billion (US$156 million), representing decreases of 56 percent and 31 percent respectively. Good growth in pens has boosted 2016 generation biomass and late summer harvesting has seen prices drop somewhat, but 2015 generation biomass is still 16 percent down year-on-year. As a result, high prices are likely to be supported well into 2018.

Chile

The passage of hurricanes through the Caribbean and Southeast United States of America in Q3 was somewhat of a concern to Chilean salmon industry stakeholders, as 60 percent of the three salmonid species (Atlantic, Coho and trout) enter the United States of America through Miami. Indeed, several fresh Chilean salmon traders were impacted by the suspension of flights during the period.

In terms of pricing, fresh salmon fillets from Chile averaged US$5.90 per pound in the first half of 2017, 20 percent more than the same period in 2016. The higher price level has boosted revenues of Chilean salmon companies, reversing losses in many cases, but this trend is expected to turn downwards in the second half of the year as increased supply volumes lead to lower prices.

During the first half of 2017, Chilean salmon and trout exports combined were worth US$2.38 billion, 29.8 percent higher than the same period in 2016. Of this total, 87.6 percent were comprised of salmon (Atlantic and coho) and the remaining 12.36 percent of trout.

There are somewhat varying views amongst industry participants regarding expected harvest volumes in Chile next year, largely due to the uncertain impact of new regulations limiting production growth. According to executives at Marine Harvest, one of the largest salmon aquaculture companies, Chile is likely to slightly reduce its production level in 2018 compared with 2017. However, the Norwegian capital group Austevoll Seafood, through its subsidiary Lerøy, has forecast stable production in 2018 due to regulations, which seek to protect crucial environmental and health aspects of the sector.

United Kingdom

Since the depreciation of the British pound versus various currencies, following the Brexit vote, the Scottish salmon farming sector has been in an ideal position to take advantage of the tight global supply and high prices. The currency trend has essentially equipped the United Kingdom's well-diversified set of export markets, led by the United States of America, France and China, with boosted purchasing power. Together with the increase in United Kingdom production and the prevailing price level, this combination of factors has seen industry revenues increase drastically. However, with warmer waters this year promoting growth and sea lice issues, the associated costs remain a challenge that need to be overcome.

High prices are also having an effect on the United Kingdom's large domestic salmon market, with a recent Nielsen survey showing a 10 percent increase in prices and a 6 percent decrease in volumes over the 52 weeks before 12 August. Consumer aversion to the high cost of fresh farmed salmon is helping substitute products, and industry reports suggest that fresh wild Alaskan salmon, in particular, is becoming more popular.

Wild salmon

Wild salmon harvests in Alaska look set to come in above forecast but below those recorded in the last odd year, 2015, mostly due to lower pink harvests. The latest year-to-date figures as of the end of September puts the total number of fish at 219 019, equating to approximately 435 000 tonnes. Chum harvests have been exceptionally good in Alaska this year. In the Russian Federation, wild salmon catches are projected to total 320 000 tonnes, a 28 percent decline from 2016 and 15 percent down from 2015.

Markets

Although global salmon supply has bounced back from the sharp tightening following the algal bloom mortalities, this has been offset to a significant extent by a parallel recovery of demand in a number of markets, including large emerging markets such as Brazil and the Russian Federation. Import value growth in both countries jumped back into positive figures in the first half of 2017, reflecting an improvement in the economic environment. Meanwhile, Asian markets such as the Republic of Korea and Thailand are posting consistently high growth figures in value terms, indicating that buyers are ready to pay more to secure a limited supply of fish. In developed markets such as the United States of America and the EU28, the focus is on value-addition – smaller portions packed for convenience – in order to make the high price level more palatable to the consumer.

France

After a recovery in import volumes in recent years, French consumer demand for Norwegian salmon is now becoming increasingly hesitant in light of the of unrelenting price level. Imports of Norwegian product, typically fresh whole, have fallen back slightly this year and household consumption is significantly down. However, demand for Scottish salmon marked "Label Rouge" (a prestigious quality certificate awarded by the French Ministry of Agriculture) and Irish organic salmon is increasing, reflected by increasing import volumes even as prices rise. Overall, domestic demand is steady in Europe's largest market, but there is limited potential for volume growth when French buyers must share tight global supply with booming markets in emerging regions.

Germany

New consumer-level data from the Fisch-Informationszenturm shows that German demand for seafood remains strong, albeit demonstrating considerable resistance to spiking prices in a number of categories, including fresh salmon. Continued growth in this segment remains driven by sales in discounter retailers, despite the current price level, and also in supermarkets. This popularity is largely at the expense of smoked and frozen salmon, however, and imports of both these product types have fallen in the first half of 2017.

The United States of America

During the first half of 2017, the United States of America imported an estimated 181 500 tonnes of salmonids during the first semester of 2017 worth a total of US$1 898 million. These figures represent a slight increase of 0.25 percent in volume and a considerable rise of 24 percent in value compared with 2016. Three countries account for 74 percent of the total volume imported. Chile was the leading supplier (65 700 tonnes worth US$828 million), followed by Canada (43 500 tonnes worth US$379 million) and Norway (24 500 tonnes worth US$285 million). Chile and Canada registered a decrease in volume terms, while combined, all three countries posted growth in value terms.

Japan

Japanese imports of Chilean farmed coho salmon are down so far this year, although this is not because of reduced production in the South American country. High prices of Atlantic salmon in 2016 created new demand for alternatives, such as coho, in multiple markets, including the Russian Federation, Brazil and various East and Southeast Asian markets such as Thailand. Combined with a weakening of the Japanese currency, this has lowered the negotiating position of Japanese importers and a substantial decline in salmon import volume is expected for the year as a whole.