Callander McDowell
Callander McDowell
reLAKSation no 410
Inevitable: According to IntraFish, salmon prices have fallen by more than ten percent this week. This is not particularly of any surprise to us at Callander McDowell. We have anticipated this price fall for some time as we did not believe that such high prices were sustainable.
Prices have been buoyed up by the disease problems in Chile leading to a hyped up market in the US, despite the latest US statistics showing that salmon consumption fell in 2008. Concern that there would be a shortfall in supply to this key market has helped boost the price even though consumers have been unwilling to pay much more for salmon. Helped by the appearance of wild salmon from Alaska, the market has had opportunity to become more settled.
Meanwhile the traditional European markets are now entering the main holiday period where demand has traditionally been low, even though reports from SeaFish suggest that fish and seafood are preferred meal choices during the summer months, at least in the UK. In the past, demand for salmon has fallen off during the summer and prices have reflected this.
Traditionally, demand starts to pick up towards the end of summer as the markets build towards Christmas. Unfortunately, prices have not always picked up as well because production has also increased in the hope of benefiting from the pre-Christmas surge. We suspect that this will happen this year as we understand that there may be plenty of fish in the sea ready for harvest.
One Norwegian exporter told IntraFish that the lower price will be healthy for the entire industry; a view with which we will probably agree. Lower prices mean that the raw material is more attractive for further processing and this will widen the demand for salmon in different forms.
One aspect of the price fall that is a puzzle to us is that IntraFish suggest that this dramatic fall is due to Marine Harvest reporting that its Smola location is clear of Pancreatic Disease. Why healthy fish should force prices down is unclear except that if the site had suffered from PD, less fish would reach the market. However, we can believe that the effects of one location would have such a dramatic influence on prices.
It is not just prices that have fallen this week; the share price of a number of seafood companies has taken a tumble too. IntraFish reports that over the past three weeks, NOK 4 billion has been wiped off the value of Oslo listed seafood shares.
Klaus Hatlebrekke of DnB NOR has said that the fall in share values started after Marine Harvest announced it had a margin of NOK 8 per kilo in the second quarter despite the high salmon prices. Mr Hatlebrekke said that the company should have received more and this has undermined confidence in the company since it has failed to benefit from the good prices. Lower prices are now expected to cause share prices to fall further.
We, at Callander McDowell, continue to wonder about the superficial nature of some of the views relating to share prices. We know all too well that the main guide to estimating how well the shares of salmon farming companies will do is the price of salmon. If salmon prices rise, then the share price rises too and vice versa. Unfortunately this short-term view ignores any long- term vision that the company might have. Such strategies are totally ignored in favour of using salmon prices to estimate company performance.
In this case too, salmon prices have overridden the wider picture. Yes, Marine Harvest might have achieved more than NOK 8 over their second quarter but in their stock market notification they make it perfectly clear that this figure has been affected by their fixed price contracts.
A great deal of salmon is sold on contract, typically at prices lower than the quoted spot prices. If contracts were ignored and all the salmon was sold at the spot price, it is likely that the margins would be higher but what Mr Hatlebrekke ignores is that if all the salmon was offered at the spot price, much would remain unsold because the spot price has been just too high, as this week’s events have proved. Alternatively, if it hadn’t been for contracts, the spot price would have fallen much earlier and so would have margins with it.
Playing the stock market is all about making short-terms gains or else being prepared to invest for the long-term. For some time the salmon industry has been on the cusp between the two. Now perhaps is time to play the long-game and move the focus away from prices to market development. If Marine Harvest’s current margins are the main reason for the recent fall in share prices, then it is a poor reflection on some investors. But then the state of salmon margins seems little reason to also prompt a fall in the share price of seafood companies with little connection to the salmon industry. Maybe it is time for shareholders to do some of their own research about the companies they invest in rather than rely on others’ views.
Think twice: Fishupdate.com reports that a group of MP’s, who sit on the Parliamentary Environment, Food and Rural Affairs Committee, called on the Government to rethink its advice about advising people to eat at least two fish meals a week. They say that declining fish stocks are giving cause for concern and globally there might not be enough fish to meet demand. Instead, they say that more should be done to promote little known types of fish and shellfish, but they added that the UK had a moral duty to do more to boost food production.
We, at Callander McDowell might agree with these MP’s that perhaps it is time to change the campaign to promote two portions of fish a week but not because of concern about the state of fish stocks. We wonder whether the two a week message is too focused on the ideal, ignoring the many people who might benefit from eating even one meal of fish a week but so far, do not do so.
The growing number of obese people in the UK shows all too obviously that healthy eating messages don’t necessarily work. Perhaps rather than focus on the health benefits, the message should be about how good to eat fish can be. It is only necessary to the space given over to fish in all the retailers compared to meat to see the relative level of fish consumption. Fish needs to be made more attractive so consumers want to eat it rather than being told to eat it.
The thinking behind the MP’s recommendation is also flawed. If there is not enough fish globally to meet demand, then changing the two a week message to one which promotes lesser known species will not help improve the state of fish stocks. The only way that this will happen is if there is the will to follow the ‘moral duty’ to boost food production. This can only be achieved through aquaculture. As we have repeated many times, the only way to relieve the pressure on wild fish stocks is to source supplies from farming. Increased aquaculture production is the only way to guarantee that consumers can eat two portions of fish a week. It is also the only way that the two a week message can still be promoted.
Princely praise: Prince Charles recently hosted a reception at Clarence House in London to celebrate the 10th anniversary of the formation of the Marine Stewardship Council. The Prince, who was an early supporter of the MSC, praised the group for its work. He told the gathering that he had tried to raise the issue of fish stocks many years ago when few people had given much thought to the problem but then hardly anyone wanted to listen. According to Seafood.com, he said that over the years, he has tried to make speeches and hold seminars about the fishing problem but it had been very difficult to get the attention of all sorts of people, agencies, organisers and the consumer. He added that the subject was quite literally ‘out of sight out of mind’.
And if anyone should know this, it must be Prince Charles for he knows all too well how effective the approach of ‘out of sight, out of mind’ can be. It is only necessary to take a look at his range of foods - ‘Duchy Originals’ to see how he has personally tackled the question of fish sustainability.
Duchy Originals (www.duchyoriginals.com) was set up by the Prince in 1990 to promote organic food and farming and to help protect and sustain the country side and wildlife. He said that he wanted to demonstrate that it was possible to produce food of the highest quality, working in harmony with the environment and nature, using the best ingredients and adding value through expert production. It should be noted that all the profits go to his Charitable Foundation.
Amongst all the foods, Duchy Originals produces just one fish product – smoked salmon. Duchy Originals states that ‘our wild Alaskan ‘Coho’ salmon is hand cured with a simple combination of sea salt, Demerara sugar and Scottish heather honey and then traditionally smoked in a draft kiln for a full deep flavour. The smoker uses Hazelwood from the Duchy of Cornwall Estates in Herefordshire and aged oak whisky cask shavings.
The pack may contain MSC certified Alaskan salmon but the MSC blue tick is no-where to be seen on the front of the pack. Instead, it is hidden away on the back of pack, well out of sight and totally out of mind!