Salmon market recovery gains momentum

16/12/2021

As vaccination rollouts continue across the world, demand for salmon from the foodservice sector is returning to supplement revitalized retail channels. Combined with a relatively limited global supply growth, this is pushing prices and revenues upwards, despite widespread logistical challenges.

Production

Atlantic salmon

The most recent estimates for total global output of farmed Atlantic reflect an upward revision of previous forecasts of approximately flat growth. This is the result of higher than expected harvests in the first few months of the year, prompted by a return of market demand after an extended period of uncertainty, which sent farmers scrambling to harvest the increasing proportion of fish reaching harvest weight. As of mid-year, production growth in 2021 is projected to be around 2-3 percent overall. While this exceeds earlier expectations, it would nevertheless represent a slowdown relative to long-term trends, driven primarily by a marked drop in harvests in Chile, the world’s second largest producer of Atlantic salmon.

In Norway, production in the first three months of the year was some six percent above the same period last year but harvests were reduced in the second quarter. According to official figures, 168.6 million fish were harvested in the first six months of 2021 compared with 171.2 million in 2020, although harvest weights were generally higher. Transportation, both from farms and from processing sites, has been difficult due to high costs, delays and a general lack of capacity, particularly for air freight routes. While earnings for Norwegian aquaculture firms were down earlier in 2021, improving market conditions have seen valuations rise as the year has progressed. The Norwegian industry continues to pursue several different avenues towards increasing production, including land-based farming and a proposed new licensing scheme to incentivize sea-based closed-containment systems.

The Chilean sector has faced a variety of challenges over the course of the pandemic, including lockdowns, high logistical costs, labour shortages, algal blooms and regulatory changes, as well as a trucker strike and wider social unrest. The country’s Atlantic salmon production decreased by 1 percent to 366 000 tonnes in the first half of 2021. This figure reflects a sharp supply contraction in the second quarter after an early year harvesting rush. Market uncertainty contributed to significantly reduced smolt stocking last year, and this has translated into a forecast for significantly negative supply growth for 2021.

In Scotland, Europe’s second largest farmed salmon producer, harvest volumes have bounced back in 2021 after a slowdown last year. Beyond the global logistical issues brought about by the pandemic, Scottish farmers have also had to overcome the additional administrative and financial burden imposed on them by the Brexit.

Elsewhere, the global effort to secure future salmon supply amidst rapid demand growth continues, and supply volumes are growing in a variety of new producer regions including the Russian Federation, Australia, China, and Iceland. At the same time, new production technologies continue to be explored to supplement open net-pen methods.

Other farmed salmonids

In Chile, production of farmed rainbow trout in the first half of the year reached 34 700 tonnes (-33.3 percent) while harvests of coho salmon over the same period totalled 39 700 tonnes (-17.6 percent). In Norway, farmed rainbow trout supply has been tight in 2021, with around 10 million fish harvested from January-June, 10 percent less than the same period last year.

Wild salmon

Wild Pacific salmon catches have significantly exceeded forecasts this year, both in Alaska and in the Russian Far East. In particular, the Alaskan pink salmon harvest reached 149 million fish, 20 percent above the preseason forecast and some 24 million more than in 2019, the last comparable year. However, fish sizes for both pink and sockeye were reported to be lower, meaning a likely reduction in total harvest volume. Meanwhile, the Russian fleet recorded the second largest catch in history, at an estimated 540 000 tonnes. The unexpected volumes have led to a shortage of cold storage space which is concerning the industry.

Markets

As 2021 has progressed, global demand for salmon has steadily strengthened as governments have loosened restrictions and expanded vaccine coverage. As a versatile and highly popular fish, salmon has always been well-diversified in terms of region, product mix and across both retail and foodservice. During the height of the pandemic, the sector was also able to leverage its highly integrated supply chains and considerable marketing power to effectively capitalize on the resurgence of demand from retail as well as from newly emerged delivery services and e-commerce sales.

Now, with the reopening of foodservice well underway and these new sources of demand showing little sign of weakening, traders have been reporting a very healthy market environment. Consumers have retained their renewed interest in home cooking, but are also eager to return to restaurant dining after the extended closure. Meal kits and other convenience products have also been given a boost and the pandemic has generally been a catalyst for product innovation. Transportation challenges, while negative for the industry overall, have in some cases opened up opportunities for new buyer-supplier relationships when a competitor has been unable to meet the market’s requirements. Some issues still remain, particularly with regard to logistics and ongoing difficulties being faced by restaurants and other businesses in hiring staff.

In the United States of America, after weathering the pandemic relatively smoothly, the salmon market returned to full strength over the 2021 summer season. Indeed, reports suggest that sales are in some cases even above those observed before the pandemic, boosted by marketing and product development efforts during the pandemic. The return of the cruise line industry has also contributed to a resurgent market. Similarly positive trends have been evident in the European Union, Russia, Japan and Brazil. As societies gradually edge nearer to normality, it appears that in many key markets salmon has emerged with a more consolidated presence at retail, an expanded range of distribution channels, and variety of new products.

Trade

Despite the strong return of demand in the global salmon sector, exporters have had to contend with a variety of logistical challenges. Among the most prominent of these concerns are soaring freight costs, driven by a worldwide container shortage and worsened by the Suez canal blockage, administrative delays due to new border procedures and port backlogs. As well as international shipping, transportation of fish from farms and processing sites has also been affected. Air routes for fresh salmon, such as from Scotland to China, are also stretched to capacity.

Scottish exporters targeting the European Union have had to grapple with an additional set of issues related to Brexit, particularly earlier in the year, but first year export figures were nevertheless significantly higher than in 2020. According to Her Majesty’s Revenue and Customs (HMRC), the United Kingdom of Great Britain and Northern Ireland exported 33 638 tonnes of whole fresh salmon to the EU in the first 6 months of the year, worth USD 254 million. While this represents a new record, exporters expressed some disappointment over the lower than expected price levels and the increase in costs.

In the US, prices have been improving as the year has progressed, leading to gains in imported value. According to the National Oceanic and Atmospheric Administration (NOAA), over the first six months, US salmon imports reached 242 815 tonnes worth USD 2.49 billion. These figures reflect increases of 13.4 percent in terms of volume and 19.4 percent in value. Almost every major supplier has seen its exports to the US market increase, particularly European producers who have been able to take advantage of low harvest volumes and supply chain difficulties in Chile.

Demand for salmonids in Brazil has also been improving. During the first half of the year Brazilian imports of salmon and trout grew by 19.9 percent in terms of volume compared with the same period of the previous year, to 48 955 tonnes worth USD 291.9 million (+45 percent). Chile, which accounts for the vast majority of supply to the Brazilian market, is running successful promotional campaigns to align with the reopening of restaurants.

Overall, Chile exported 144 000 tonnes of Atlantic salmon in the first six months of the year, for revenue totalling USD 1 926 million. These represent increases of 8.6 percent in terms of volume and 11.3 percent in value compared with the same period of 2020. Meanwhile, exports of coho salmon fell 18 percent in both volume and value terms to 67 914 tonnes worth USD 345 million. Exports of rainbow trout dropped 30.8 percent in quantity terms and 26 percent in value, to 21 605 tonnes worth USD 200 million.

According to the Norwegian Seafood Council (NSC), Norway exported 12 percent more Norwegian salmon in the first half of the year, reaching 562 000 tonnes. Lower unit values in the first quarter of the year, partially due to a stronger Norwegian krone, meant that the increase in value for the same period was just over 1 percent, at a total of NOK 35.3 billion (USD 4.13 billion). NSC analysts have pointed to the reopening of restaurants in some important EU markets such as Italy, together with the persistence of positive trends in home consumption and home delivery services, as key factors behind the improved export performance.

Prices

Norwegian farmed Atlantic prices started relatively low in early 2021, kept down by high harvest volumes, but climbed strongly towards mid-year as the economic reopening progressed. After peaking at NOK 75 (USD 8.98) per kg in May (Fish Pool Index), they fell back in the traditional seasonal pattern but upward pressure has remained constant. Prices for Chilean Trim D fillets (FOB, Miami) also peaked in the second quarter, at USD 6.72 per kg, but have generally remained significantly higher due to tighter Chilean supply and a strong US market.

Outlook

So long as the majority of markets continue on their current reopening trajectory, the outlook for the global salmon sector in the medium term is relatively positive. Supply has now tightened considerably, while demand continues to strengthen, translating into high price expectations. As of the end of October, December forward contracts at Fish Pool were closing at NOK 66.25 (USD 7.93) per kg, and this level is forecast to be maintained throughout the first half of 2022. In Chile’s case, the market balance is likely to be significantly tighter, despite frozen inventories still to be used up, particularly of coho destined for Japan. Costs are also expected to stay high, however, and the resolution of the variety of issues now affecting worldwide logistics is some way off.

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