reLAKSation 43.
Biomass(ive)?: There has been a great deal of speculation regarding the current biomass of salmon held throughout the world's farming industry. An audit of the global biomass carried out by NSEC, the banks Nordea and Sparebank1 and Kontali Analyse concluded that year on year, the total biomass was up by 10%.
Lars Liabo of Kontali told farmers at the Annual General Meeting of the Nordland Fish Farmers Association that the biomass forecasts could open the door for a rapid upturn of salmon prices.
This would be welcome news, especially for the banks as, according to IntraFish, they are agitated by the low prices and finding it difficult to make assessments of expected cash flow from the industry.
However, despite the uncertainty, Anne Sofie Utne of DnB believes that "the salmon crisis" is only short term.
We, at Callander McDowell, feel that too much has been read into these biomass figures as they tell only part of the story.
Clearly, the focus of attention is how this biomass will affect prices this year. According to Mr Liabo his figures indicate that the Norwegian biomass will be in balance this year and the last time this happened in 2000, prices rose significantly. He therefore expects to see a sustained price rise this year, although he was unable to comment on the exact figures.
Yet at the same time, NSEC reports that the Norwegian biomass is up by 4.8% on last year. Increased biomass would suggest increased production. Past experience has shown that as production rises, prices have fallen. It ma y therefore be a little early to predict that prices will remain strong throughout the year.
The picture is further complicated by the fact that the total biomass contains 32% more of the larger and 16% less smaller fish than at the same time as last year. Tom Sebulonsen of NSEC suggests that this ratio is similar to that of last year for Norwegian fish. This could well be a contributory factor to last year's low prices and contrary to Kontali's predictions, the price rise may well be short-lived.
This is because whilst it may be more cost-effective to produce large fish, consumers appear to prefer the smaller fish. Bigger fish are simply too large, even when filleted or cut into steaks. Consumer resistance to large fish could well push down prices, especially if they dominate the biomass.
Finally, harvest rates can also dramatically affect prices if too many fish are harvested at the same time. This has happened in the run up to the Christmas market, when farmers have held back production in the hope of higher prices stimulated by Christmas demand. Unfortunately, this strategy has backfired as the number of fish harvested at this critical period has forced down the price.
Prices will only rise if stimulated by demand. This can happen even if the biomass is at record levels. This would require a much more targeted approach to the markets in which production is diversified to reduce direct competitiveness, not only internationally, but also between producers from the same country.
Prices!!!: Regular readers of reLAKSation will know that we at Callander McDowell have repeatedly stated that we believe that the overall price trend is still in a downward direction. This does not mean that we will not expect to see any price rise at all for this is not the case.
Although there has been a clear downward price trend since 1989, prices have shown significant fluctuation both up and down over this period. This can be attributed to times of peak consumer consumption and localised supply and demand. For example, we are now in the run up to Easter, which is now perceived as being the peak time for salmon consumption and, not surprisingly, prices are rising. The question is whether as Lars Liabo suggests, prices will continue to rise after Easter or follow the trend of previous years, when prices have fallen towards a summer low.
We can only repeat our view that the average price of salmon will follow a continued downward trend. This is the challenge to which the industry must now respond.
Share and share alike?: The latest IntraFish market report, (which we admit we have not read) poses the question as to whether there is a correlation between the price of salmon and share prices.
Professor Frank Asche reaches the conclusion that there is, but this is really not that surprising.
The salmon industry is still relatively new with regard to the stock market. Analysts are not necessarily experts on the intricacies of salmon farming and have little to measure whether the respective companies on whose shares they report are doing well or not. The most obvious guide is the price of salmon, for in the simplest terms, higher prices should mean higher profits. Equally, lower prices would be expected to reduce profitability and hence the share-value.
Yet, the value of shares does not always have to correlate with the price of salmon. This is because there is potential to increase profitability even when salmon prices are low. However, this can only happen if the company pursues a more market-led strategy than the traditional production-led strategies usually progressed by the salmon industry.
There is another factor, which can affect the direct correlation of salmon prices and share value. This is whether or not shareholders are looking for a long-term investment or not. Some investors hold onto shares for only a limited period of time cashing in on any short-term rise. IntraFish have reported that since the beginning of the month, shares in fish farming companies have risen by up to 52% in one single week. The potential therefore exists for traders to make a killing. Whether this is to the advantage of the company in whom they have invested is debatable.