The formidable return of Chile’s Atlantic salmon farming industry from the infectious salmon anemia (ISA) outbreak in 2007 that decimated the country’s salmon output for three years has created considerable volatility in today’s market.
Less than a year ago, some of Norway’s leading players like Marine Harvest were posting record first-quarter results. But before the summer could get into full swing and thanks to the sizeable volumes that were again coming out of Chile, their fortunes paled significantly. This was in line with the huge slump in farm gate prices that the additional supply brought.
While at the start of 2011, the farm gate price was approaching NOK 50 (EUR 6.55, USD 8.71) per kilogram, it was half that price by year’s end. The average price for 2011 was NOK 31.93 (EUR 4.18, USD 5.55), down from NOK 37.47 (EUR 4.91, USD 6.52) in 2010.
“The growth in Chile is nothing short of dramatic. In 2011, it harvested 220,000 metric tons whole fish equivalent (WFE) of Atlantic salmon, and this year it’s expected to harvest 344,000 metric tons,” said Gorjan Nikolik, senior associate at Rabobank International.
Biomass and feed sales growth are good short-term indicators of output. Nikolik explained that in 2010 Chile’s biomass increased 116 percent, which ramped up the harvest volume by 79 percent in 2011. According to Rabobank’s data, the increase in biomass for 2011 was 102 percent, which may bring growth of 60 to 70 percent this year. In its latest model, the Dutch-based bank expects a production expansion of 56 percent for 2012.
Meanwhile, Norway’s biomass and feed consumption have also grown a great deal in recent months, assisted in no small part by the mild winter temperatures.
“Because of this higher biomass, Norway’s growth is now estimated at between 9 and 12 percent, up from 7 to 8 percent a few months ago,” said Nikolik. “This means we’re going to have a good Norwegian year at the same time that Chile is coming back strongly into the market.”
Norway produced more than 1 million metric tons of salmon last year. Following Rabobank’s model, 1.1 million metric tons can be expected in 2012, which will take global production past 1.8 million metric tons. Estimates also point toward a promising 2013.
Nikolik said the low farm gate prices make it possible for the market to consume a one-time increase of 12 percent but added that it will be hard for it to absorb an additional 13 percent production this year and a more modest 7 percent in 2013.
“If you take these 36 months, there’s going to be a global supply increase of 37 percent. That’s huge,” he said.
But while the low prices will be tough on producers, it will allow retailers and processors to compete on price.
“In some ways it will be very good for salmon as a sector. It will penetrate new markets, get many new customers; it will hopefully be a year of promotion,” said Nikolik. “But we don’t expect the low price to continue for too long; we see this as a cyclical industry and the bottom of the cycle will be somewhere in mid- or end-2012.”
It is vital, however, that producers find new, long-term markets. They are certainly looking to broaden their geographical sales base and it was telling that in announcing its more modest results for the fourth quarter amid the “challenging supply situation,” Marine Harvest said it was now selling a lot more product to Japan, China, Brazil and Russia than before.
