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What are we looking at after the Q2 reports?

What are we looking at after the Q2 reports?

Eirik Talhaug | September 2020
2 min read

Most of the large salmon farmers have now published their Q2 reports. Most of them, with the notable exception of Salmar, disappointed the equity markets. The cost of production is increasing and the COVID-19 gave the farmers significant challenges. The HORECA segment of demand suffered from closed hotels, restaurants and employees working out of their homes.

According to the different quarterly reports the companies expect a rather low supply growth for the full year of 2021.

If we take a look at the quarterly report from Mowi we see some interesting numbers. Their expectations for supply growth for 2021 is a low Y/Y (year-on-year) growth of 1% and a high Y/Y growth of 3% out of Europe. The global expectations is a low scenario of 2% and a high of 5%. These expectations are well below the average demand growth of 5-7%. 

So what does this mean? All other things being equal we should expect a price increase on salmon. Especially the European supply growth is limited, with both the Faroe Islands and the UK having a supply decrease. If we look at the supply/demand price regression a global supply increase of 2 to 5 percent would on average give us a price increase of around 5 to 15 percent. 

Unfortunately we are now living in anything but average times. COVID-19 is not yet done with the world it seems. There may or may not be further challenges to the value chain and distribution chain. This would be bearish for the price, thereby negating the price increase indicated by the supply/demand curve.

What we have seen in previous years where the situation has been similar (let us here disregard COVID-19) with “low” prices going into the fall and with expectations of rather low supply increase in the following year is that the prices in the fall do not fall as far as expected. Therefore one should not be surprised if the drop in the prices this fall is not as far as expected, caused by the industry buying significant volumes for freezing. Thereby they take some of the edge of the limited growth in supply for 2021.

What are we looking at after the Q2 reports?
Written by Eirik Talhaug

Eirik Talhaug is the CEO of JET Seafood, the company behind Seafoodportal.com. With a background from both seafood, energy commodities and finance, he brings different perspectives together for a nuanced opinion.