Saumon & Truite

News in the salmon sector for 2016 has so far been dominated by reports of a massive algal bloom in southern Chile that had killed some 27 million fish by 10 March. Compounded by an expected drop in production in Norway where growth is currently limited by sea lice issues, the supply shock has driven up previously depressed Chilean farmed salmon prices while already high Norwegian prices have been pushed even further upwards.

According to a recent Nordea market report, total Norwegian production of Atlantic salmon is forecast to fall by some 5% in 2016, to approximately 1.18 million tonnes. A major factor behind the drop is the difficulties of the industry in controlling sea lice at farms, for which standard treatments are becoming less effective. Although the number of lice per fish is lower than it was previously, the cost of keeping these numbers down is higher and the Norwegian government is restricting licensing of new farms based on strict sea lice limits.

The recent events in Chile and the expected negative growth in Norway has inevitably seen prices jump to exceptionally high levels in early 2016, following the end-of-year spike due to already tightening supply in the latter half of 2015. As of week 9 of 2016, the NASDAQ salmon index was at NOK 61 per kg for fresh whole Atlantics, around NOK 24 higher compared with the same week of 2015. These near-record prices are being maintained by a now very limited supply of fish and strong demand in the EU and the USA, with the EU forced to pay more to compete with the USA’s recent currency advantage.

This price hike has seen the value of Norwegian salmon exports in the first two months of 2016 rise by 17% year-on-year to NOK 8.4 billion (144 860 tonnes of fish, -2% in quantity), which follows an already strong year of export performance in 2015. The EU market continues to absorb large volumes of salmon despite spiking prices, buying a total of 110 000 tonnes of fish worth NOK 6.2 billion in the first two months of the year, representing a 2% drop in volume and a 19% increase in value. The Norwegian krone has weakened versus the euro over the last two years, allowing exporters to more easily pass on higher prices to buyers, although in the USA this effect has been even more prominent. A strong US dollar has driven the value of Norwegian salmon exports to the USA up by 25% to NOK 473 million in the first two months of 2016, and volume up by 6% to 5 920 tonnes. Other markets in the Middle East as well as in East and Southeast Asia are also showing strong demand growth, with Eastern Europe the only region suffering a drop in imports.

Three critical factors, including biomass levels being lower than they were during the last two years at Norwegian farms, currency trends continuing to favour Norwegian exporters and Chilean supply taking a heavy hit, mean that the industry can expect the current price level to be more than temporary. This forecast is reflected in an average forward price at FishPool of NOK 57 per kg for the remainder of the first two quarters of 2016. Although producer bottom lines will certainly benefit, despite increasing biological costs, exporters and processors will be wary of the risks of increased volatility and margin squeezes due to resistance further down the supply chain.