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As global salmon production soars, producers are feeling the price pinch: farms in Chile may curb output, and major producers might merge.

Salmon production is on the upswing in Chile. Having overcome the infectious salmon anemia (ISA) crisis, the world's number two farmed salmon exporting country stands to produce 700,000 tons this year, and dominate the Pacific export trade. The problem is prices.

Chilean salmon prices have fallen to their lowest levels in five years since peaking in 2011. For example, Atlantic salmon prices have fallen 46% since reaching $13 per kilogram in 2011. Meanwhile, trout and coho prices have dived 30% and 50%, respectively.

As if that weren't enough, fish feed prices are soaring because of the drought that has ravaged US crops. Soybeans, wheat and corn are up 38%, 32% and 23%, respectively, according to Mauritius Toirkens of BioMar Chile. CEO Felipe Ureta said the company is looking for ways to cut costs, such as alternative plant-based feeds.

It's not just the producers that are suffering. Marine Seafoods Co., a seafood importing firm based at the Tsukiji wholesale fish market in Tokyo, filed for bankruptcy at the Tokyo District Court on Aug. 2, Tokyo Shoko Research, a private credit research agency, reported on Aug. 17. The bankruptcy was blamed on the price decline in salmon, its main commodity.

Chilean coho imports by Japan were reported to have slowed in June. But cumulative imports from January amounted to 85,364 tons, and those from October (when the current season started in Chile) came to 109,826 tons--both the largest volumes ever for the respective periods. The glut has been so great, Nikkan Suisan Keizai Shimbun reported, that there is a shortage of cold storage capacity.


But at the end of August, it looked as if wholesale prices for Norway-sourced Atlantic salmon had bottomed out on the Tokyo market after months of decline. This was ascribed to reduced landings in Norway due to the summer vacation season there, and the coming of the off-season for Chile and Japanese domestic sources. Wholesale prices of Atlantic salmon at Tsuldji stood at Y750-800 per kilo, a 10-20% rally from the lowest prices in June.

That was good news for Norway, which ranks as the world's number one salmon exporting country. The value of exports of Norwegian salmon in the first half-year had totaled NOK 14 billion, according to the Norwegian Seafood Council, down by NOK 967 million or 6.5% compared to the same period last year. In June, the average price for fresh whole Norwegian salmon was NOK 26.80, compared to NOK 32.77 a year earlier. Even with the recent rally in Japan, there's still a long way to go: prices had hit [yen] 1,400 a kilo in the summer of 2011 before sinking to [yen] 700 this year.

Cermaq, an international fish farming group based on Oslo, with Mainstream operations in Chile and Canada as well as Norway itself, reported EBIT of NOK 60 million in the second quarter of 2012, a huge decline from NOK 318 million in the same quarter of 2011.

"The second quarter result is below our expectations. Mainstream has experienced several operational challenges with negative impact for the farming results," said CEO Jon Hindar.

Mainstream Chile, Norway and Canada all reported second-quarter losses due to lower salmon prices, seasonally low volumes and increased production costs. Mainstream Chile saw an EBIT loss of NOK 24 million compared to a profit of NOK 33 million in 2011. Mainstream Norway reported EBIT loss of NOK 3 million compared to a profit of NOK 87 million, and Mainstream Canada's EBIT amounted to NOK 11 million compared to NOK 93 million.

Between January and June 2012, Chile exported 252,587 tons of salmon, 35% over 187,096 for the same period in 2011, according to a report by InfoTrade. In value terms, in the first six months salmon exports generated $1.643 billion in revenue, up 14.3% over $1.437 million for the first half of 2011.

AquaChile, which includes Salmones Chiloe, Salmones Maullin and Aguas Claras, recorded sales of $178.7 million in the first six months of 2012. Sales were $118.4 million for Mainstream Chile, $112 million for Salmones Multiexport, $100.1 million for Marine Harvest Chile and $83.2 million for Salmones Antarctica.

June tonnage figures were 29,354 for AquaChile, 20,302 for Mainstream, 13,747 for Salmones Multiexport, 15,103 for Marine Harvest and 11,141 for Salmones Antarctica.

The average price was $6.51 per kilogram, up a bit from $6.39 in 2011, but still too low to suit salmon farmers. Chilean salmon farms reportedly may freeze or even cut production in 2013 to boost prices.

Meanwhile, the low prices are expected to trigger another period of consolidation with Chile's 20 main salmon farming companies possibly reduced by half. Mergers and acquisitions could start as early as the end of 2012 and would continue well into 2013.

Chilean companies are hoping that a growing Brazilian appetite for salmon will boost their exports. Brazil imported nearly 10% of Chile's salmon exports last year, worth $282 million, and the country hopes to raise that by 50% this year, with tonnage up 27% to 57,820. But the South American country is still a distant third in Chile's salmon export markets, far behind Japan and the United States.

As debt woes plague Europe and a US economic recovery remains tepid, Brazil's growing middle class, eager for new tastes, is increasingly attractive to many in the retail, foods and tourism sectors. Chilean producers exported $2.9 billion worth of salmon last year, far behind Norway's more than $5 billion worth of farmed Atlantic salmon.

About 60% of the world's salmon production is farmed, according to Marine Harvest, Oslo, Norway, which is active in Norway, Chile and other countries. Farming takes place in large nets in fjords or bays, or even in tanks on land.

Wild catch has been flat for more than a decade, the company says in its annual Salmon Handbook. Wild catch last year was about 930,000 tons, farmed 1.6 billion.

According to Kontali Analysis, Marine Harvest says, about a quarter of the wild salmon is exported from the United States and Russia to China, where it is processed into fillets. Sockeye, considered the prime species in Alaska, is still exported mainly to Japan. This year's catch, however, won't quite match last year's, according to Laine Welch of Ketchikan-based, who on Aug. 27 foresaw a decline of four percent.

But Tim Antilla, senior vice president of Seafood and Maritime Industries at the Wells Fargo office in Atlanta, told SalmonEx on Aug. 29 that farmed salmon isn't really a threat to wild salmon.

"Indeed, farmed salmon's marketing efforts over the last 20 years played a major role in increasing the overall market, benefiting wild salmon sales," he said. "Today, Pacific Northwest seafood companies own farms, both in the United States and abroad; in addition, nearly all broad line seafood distributors carry both wild and farmed salmon."

As for domestic salmon sales in the United States, SalmonEx director Arturo Clementi sounded a cautionary note. "The US market is emerging from both a shortage of salmon and a period of high prices," he said. "Because of this situation, it will be difficult to rebuild demand quickly. There is no doubt that in the medium-term, we'll see demand for salmon increase; in the short-term, however, we are most likely going to see an oversupplied market."

Another complication for the international wild salmon market is that Russia has announced a 45% reduction in its 2012 salmon harvest, to just 275,000 metric tons. The Russian government allows Japanese vessels to catch salmon and trout inside the nation's 200-nautical-mile exclusive economic zone around the disputed Kurile Islands. This year, the amount will be 7,071 metric tons, a 27% increase.

Russian pinks and chums, which make their way to China for reprocessing via bonded warehouses in South Korea, will total 170,000 and 70,000 metric tons, respectively.

Sockeye is favored for salting in Japan for its deep red color. Russia exports about 25,000 metric tons of sockeye to Japan annually, most of it caught off the Kamchatka Peninsula.

Alaska produces 75% of the world's sockeye and is the other major supplier to Japan. Marubeni Corp., which in December upped its US sockeye processing capacity with the purchase of the Naknek-based Red Salmon Cannery, has the highest market share of sockeye in the Japanese market.

There are yet more international developments. AgriMarine Holdings, Vancouver, British Columbia, Canada, has entered into an agreement with the Ito-Yokado grocery retail chain to supply locally produced fresh chinook salmon from its closed containment freshwater farm in Benxi.

AgriMarine is reportedly the only company that raises salmon in China with floating closed containment technology. Operational advantages inherent with the AgriMarine Systems, it says, including the ability to moderate seasonal temperature extremes, allow for the production of high quality salmon from reservoirs that can be sold fresh, within 24 hours of harvest. This is a major consumer advantage over the imported Atlantic salmon that is currently available in that country.

Going into the wild salmon season in Alaska this year, there was concern over how farmed salmon prices will affect those of wild salmon, and fisheries economists are still waiting for more data to make a determination. While it is entirely plausible that farmed salmon prices could cause wild salmon prices to fall, nobody will really know until a significant amount of salmon is sold, Gunnar Knapp, an economics professor at the University of Alaska Anchorage Institute of Social and Economic Research, said in August.

"Right now it's the time of year when very high stakes negotiations are taking place between processors and buyers, with processors trying to sell as high as they can and buyers trying to buy as low as they can," he said. "It's all very complicated."

Knapp noted that some processors, concerned about a soft market for frozen headed and gutted fish, were saying they planned to put fewer fish into H&G and more into frozen fillets and canned salmon.

Keith Criddle, director of the fisheries division at the University of Alaska Fairbanks, noted that research done by his students shows clear linkages between ex-vessel prices for king and coho salmon from Alaska and US wholesale prices of Chilean, Canadian and Norwegian reared Atlantic salmon.

In addition, there are clear linkages between ex-vessel prices for sockeye salmon from Alaska and the supply of Chilean pen-reared coho and steelhead shipped into Japanese markets.

"Increases in Chilean or Norwegian production of Atlantic salmon primarily affect our domestic markets for king and coho, while increases in Chilean production of coho and steelhead primarily affect demand for Alaskan sockeye in the Japanese market," he said.

Now that Chilean exports have increased, they are entering a market that includes substantially larger volumes of Norwegian Atlantic salmon, and in order to clear inventory the Chileans have had to reduce their asking prices.

The resulting decline in ex-vessel, wholesale and retail prices of Alaskan salmon in domestic markets could as reasonably be attributed to the resumption of Norwegian exports to the United States as it can be attributed to expansion of Chilean exports to the US, concluded Criddle.
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Comment:As global salmon production soars, producers are feeling the price pinch: farms in Chile may curb output, and major producers might merge.(QFFI's GLOBAL SEAFOOD MAGAZINE)
Publication:Quick Frozen Foods International
Geographic Code:1U9AK
Date:Oct 1, 2012
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