Supply-Side Shock: Norwegian Salmon Prices Are Going Wild

Norwegian salmon spot prices just tagged a historical high as faltering supply combines with increasing global demand. This has unleashed a perfect storm sending prices above a multi-year neckline of NOK 70 (€7.48/$8.66), and tagged fresh highs around NOK 80 (€8.40/$9.90) — however, this price surge is not sustainable and unlikely to last for long, a seafood analyst told IntraFish.

Norwegian salmon prices are going wild. (Source: Bloomberg) 

Christian Olsen Nordby, a seafood analyst at Kepler Chevreux, describes the current price environment as “not sustainable at all and are way too high.”

Nordby said there are several reasons for the historical price shift. First, the market is being squeezed from the supply-side with cold sea temperatures restricting salmon growth, along with, the holiday season in Norway hitting the harvest. Meanwhile, there is strong demand from major markets in the Eurozone on contract prices, Nordby explained to IntraFish.

“Retail prices, which lag behind by about 10 weeks are still relatively low – which is triggering demand – but these are starting to pick up too,” he said. “Retail prices will pick up, typically resulting in lower demand.”

The seafood analyst believes that prices could be peaking in the near term, as more harvest is expected to hit the open market, as well as, Norway’s holiday season is now over. He said the industry is waiting for more supply to hit the market via the 2017 generation salmon stock.

“There is expected to be more supply in the 2017 generation as it has about 10 percent bigger biomass than the 2016 generation,” Nordby said.

“The price should slide down over the next few months, and I’m quite excited to see what will happen next week and the week after now we are done with the holidays,” Nordby explained.

Nordby could be right about his top call in the salmon market because overlaid with 2017 contracts spot prices — there appears to be weakening in price action into the second half of the year.

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Nordby concluded the conversation with IntraFish by forecasting a substantial decline in prices by July/August. He estimates that price could drop to NOK 50 (€5.30/$6.20), or about -37 percent correction from current levels. Bear market ahead?

Kjetil Lye, a commercial fishing analyst at Handelsbanken Markets, also told IntraFish, he was expecting lower prices in the second half of the year.

“I think most people do including Fishpool’s forward prices,” he said. “We certainly expect them to come down from these extraordinary levels,” he added.

Lye’s reasoning behind extraordinarily high salmon prices is similar to Nordby’s thesis of a supply-side shock, coupled with heightened demand in Europe.

“For the short term, they are not sustainable in general for the industry and will have to come down. But with limited supply-side growth, the longer-term outlook for prices is excellent, although levels are too high at the moment,” Lye said.

As salmon prices probe new record highs – all thanks to supply-side shocks in Norway, this could be more bad news for the heavily indebted American consumer who for the first time, might not be able to afford Norweign salmon this summer during barbecue season. However, if the seafood analysts are correct, and a bear market does form in prices, then Americans could certainly put the Norweign salmon on their credit cards.