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Finfish Focus: Atlantic Salmon

High prices expected to hold for at least the near future

Lisa Duchene
November 01, 2005

Buyers, hold onto your seats; for the first time in five years, the farmed-salmon market is seeing a long stretch of high prices. In most parts of the country, prices of boneless fillets have stayed well above $3 per pound for several months.

And even if prices peak this fall, look for a leveling off rather than a free-fall, asserts James Anderson, a professor in environmental and natural resource economics at the University of Rhode Island.

Suppliers say U.S. market demand is strong and rising, while demand in Europe and Japan is doing the same, tightening supplies.

Buyers can expect to pay well above $3, even $4 per pound, for farmed-salmon fillets for the rest of this year and well into 2006, as salmon producers say there’s no uptick in supplies on the horizon.

Chilean producers estimate a production increase of about 7 to 8 percent for 2006 and project the market to grow another 10 percent. In the last five years, U.S. imports of Chilean farmed Atlantic salmon have grown anywhere from zero to 17 percent over the prior year.

In late September, fillet prices were $2.60 to $2.70 per pound for 2- to 3-pound C-trim, PBO fillets, f.o.b. Miami. D-trim, fresh, 4- to 5-pound fillets went for $4.05 to $4.15 and higher, f.o.b. the Northeast, according to Urner Barry.

Prices started climbing in March, as they have the past three years due to Lenten-season demand, a scarcity of high-quality wild salmon on the market and traditionally tight imports early in the year, says Anderson. In 2004, prices peaked in April; the prior year they peaked in May and then rose again in September.

This year, no one knows when prices will peak.

“Holy cow! It keeps going up,” says Jason Paine, general manager at Aquafarms International in Miami, the U.S. sales and marketing arm for Salmones Multiexport. “Where is it going to end?”

Prices began to climb just above $2.30 per pound in March, according to the Urner Barry index, (an average value for Chilean fillets, North Atlantic whole fish and West Coast whole fish). Prices rose another dime in April, another 15 cents in May, then broke the $3 mark during June and July and climbed another 30 to 45 cents between July and late September.

During the summertime peak of the wild Alaska salmon season — marked this year by a strong harvest and strong prices — demand typically drops for farmed salmon, but this year there was no impact on pricing, says Paine. Farmed salmon prices rose during wild salmon season for the first time since 1992, notes Anderson.
Prices typically dip after Labor Day, but not this year, says Paine.

“We are seeing a sustained strong market,” he says, “one that we did not project and one that, to my knowledge, no one projected.”

So far, consumers are not balking at higher prices.

“The love affair for salmon, farm-raised and wild, has never been so high,” says Charlie Gibbons, president of Multi-Fish and Seafoods in Mill Creek, Wash.

“Consumers recognize that omega-3s and seafood, especially salmon, are very important to their health. Consumption has just gone through the roof all over the world.”

How long before prices reach a point where consumers switch to something else?

“That’s for us to find out,” says Rafael Puga, CEO of Fjord Seafoods USA and president of Salmon of the Americas, a trade group representing farmers in North and South America. “We don’t know.”

U.S. consumers started seeing higher prices in August, and some wholesalers, concerned that high prices would start to dampen consumer demand, took a hit on margins, says Gibbons.

“It will be interesting to see the true effects [of higher prices] on demand,” says Paine, “but it seems that demand has not been dramatically affected to cause a crash in the market or for the price to drop.”

One national retailer in August raised prices of its highest-priced farmed-salmon products, a trimmed, skinless, boneless fillet, from $4.49 to $4.99, with little noticeable effect on demand.

In the last several years, prices have always been below $4.99 per pound, but there is a good chance retail prices could climb above $4.99 in the near future, says the buyer.

Buyers can expect prices to rise even higher, probably 10 percent above last year, depending on the effects of rising fuel costs, says Gibbons, who hopes prices peak before reaching 20 percent above last year. Prices in 2004 reached a high of around $2.55 per pound in April and a low of about $1.90 per pound in November.

Gibbons is hopeful that the market will level off by January.

Buyers can expect prices to remain strong through most of 2006, says John Tuttle, VP of regional trade sales for Marine Harvest. Consumer demand is strong and increasing in North America, he notes.

Supply trends
Farmed-salmon suppliers point to several key factors that have tightened global supplies. For one, demand is rising in the United States, Europe and Japan.

Through July, total U.S. Atlantic salmon imports of 250 million pounds were up about 13 percent over the same period last year. U.S. imports of Chilean fillets through July reached 11.3 million pounds, a 15 percent increase over the same period last year. Imports of fresh whole fish from Canada totaled 73.7 million pounds through July, a 43 percent increase from the same period last year.

Meanwhile, U.S. imports of Norwegian salmon in all product forms fell. Fresh Norwegian fillets were at 1.4 million pounds through July, about half the level for the same period in 2004.

In the last three years, Chile exported less than 3 percent of its farmed salmon to Europe due to the European Union’s testing for malachite green, a fungicide harmful to human health discovered two years ago, says Puga. The substance is no longer used, but it took two years to get fish produced using malachite green completely out of the system.

“Everybody wanted to be 100 percent sure,” says Puga. (The U.S. Food and Drug Administration began testing for malachite green in farmed salmon this year. There is zero tolerance, because it is a banned substance.)

But Chile is now stepping up its exports to the EU, putting more demand on supply. For the first seven months of 2005, Chile exported 3 percent more farmed salmon and trout, worth about 10 percent more than during the same period in 2004, says Rodrigo Infante Varas, general manager of SalmonChile, a trade group of Chilean producers.

In the European market, ongoing trade issues have surrounded Norwegian farmed salmon. In early July, the EU imposed a temporary minimum import price of $3.43 (2.81 euros) per pound, intended to protect EU independent salmon producers from less-expensive Norwegian imports. The price is in effect until January 2006.

But the minimum-price agreement has had little effect, because prices are so high, says Paul T. Aandahl, market analyst with the Norwegian Seafood Export Council in Tromso, Norway.

“In our opinion, the demand for Norwegian salmon, or salmon altogether, in Europe has increased,” says Aandahl. Norwegian farmed salmon exports to Europe for the first five months of 2005 were up 14 percent, he says.

Fewer players
Consolidation among producers has also affected the worldwide market for farmed salmon.

In September 2004, Nutreco Holding and Stolt-Nielsen announced they would merge their global fish-farming, processing and marketing-and-sales operations into a separate company under the Marine Harvest name. Nutreco has a 75 percent share in the new company, while Stolt-Nielsen has a 25 percent share. The deal closed in February, and no other terms were disclosed.

Cooke Aquaculture’s purchase of the U.S. and Canadian East Coast operations of Heritage Salmon closed in June. Cooke, in New Brunswick, is among the world’s top 10 salmon-farming companies and acquired Heritage’s hatcheries and processing facility in New Brunswick, Canada, and its hatcheries and salmon-farming sites in Maine.

In April, Cooke signed a letter of intent with Stolt Sea Farms to purchase operations in Maine and New Brunswick. That merger is still in the works.

“These things take a long time,” says Nell Halse, director of communications for Cooke Aquaculture, “sometimes longer than expected.”

The salmon-production landscape is still shifting as ownership jockeying continues among the industry’s largest companies.

Fjord in early October launched an unsuccessful bid to gain a majority interest in
Cermaq, a Norwegian salmon and trout feed and aquaculture company with operations in Norway, Scotland, Canada and Chile.

Cermaq’s largest shareholder is the Norwegian government, which owns a 79.4 percent stake. Norway intends to reduce its ownership stake by selling 25 million shares via an initial public offering on the Oslo Stock Exchange. The company will offer an additional 5 million shares to raise more capital.

The exchange on Sept. 28 approved Cermaq’s public offering of 30 million shares, which will be offered Oct. 24 at a price of around NOK37 (U.S. $5.69) to NOK44 (U.S. $6.77) per share.

Fjord soon offered the Norwegian state NOK47 per share to buy 33.1 million of its shares, which would have increased Fjord’s ownership of Cermaq to 51 percent had Norway — following the advice of Cermaq’s board — rejected Fjord’s offer on Oct. 5.

With prolonged high prices and consolidation in the market, the farmed-salmon industry, which struggled in past years due to a glut of fish and extremely low prices, should be poised for better times.

But producers are a bit wary of making too many predictions about the future. Fjord, for example, has not made a firm decision regarding stocking in 2006.

“Fjord today is in a wait-and-see position,” says Puga. “There is a lot happening in the next three to six months that will change the landscape of the industry,” he hints, declining to be more specific.

A period of high, stable prices is good news for the farmed-salmon industry, says Halse. This phase can allow Cooke to move to a single-year-class system whereby fish are separated among sites by age, helping salmon producers take another step toward a market-driven industry, says Halse.

“We think the future is very positive; that’s why we’re investing in it so heavily,” she adds.

November 2005 - SeaFood Business
 

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