July 18, 2024
Aquaculture industry shows cautious optimism for second half of 2024
The global aquaculture industry can be cautiously optimistic as it enters the second half of 2024, according to a new report from Rabobank, a leading food and agribusiness analyst.
Gorjan Nikolik, senior analyst at Rabobank, explained that while demand growth for both salmon and shrimp remains uncertain, there is optimism for both markets as Western economies recover. Salmon and shrimp farming continue to face biological challenges, but feed costs are expected to drop due to improved fishmeal supply.
The salmon industry is navigating a challenging period, with a cautious outlook for supply recovery primarily driven by Norway and Scotland. Significant strides have been made in addressing the industry's biological issues, but these problems have not been entirely resolved. Consequently, the supply of salmon is expected to remain constrained through the second half of 2024.
"There was a serious decline in supply in Norway due to biological challenges," Nikolik said. "There were negative numbers in the first half of the year, but now we are seeing plus 4%. We're slowly emerging from the problem."
In Norway, winter wounds bacterium severely downgraded salmon quality, affecting up to 40% of the supply in some weeks and causing prices of superior-grade salmon to skyrocket.
"The disease has been bad for a while in Norway and correlates with low temperature," said Nikolik. "A typical farm will have a 90% superior salmon or more, but they were at 80%. So, there is a significant shortage of high-grade Norwegian salmon."
Meanwhile, the Chilean salmon industry has struggled to increase supply due to algae blooms and regulatory constraints.
"In Chile, the supply issue is even bigger and it's not recovering," said Nikolik. "La Nina will bring cooler water, so it should get better."
Seasonally warmer temperatures in Norway and cooler temperatures in Chile are expected to reduce winter wounds and algae blooms, respectively. This sets the stage for anticipated supply growth in the second half of 2024. However, long-term solutions to the biological challenges faced in 2023 and the first half of 2024 remain elusive.
The sluggish demand recovery, particularly in the US and Japan, adds uncertainty to the outlook and reduces sector profitability. Even with positive economic signals, demand might not pick up during the second half of 2024.
Reduced feed costs will offer some relief, but given the lengthy production cycle, the lower cost of fishmeal will only marginally affect per kilogram production costs of salmon in the second half of 2024.
The industry is encouraged by the recent success of land-based flow-through technology, which will continue to make headlines in the second half of 2024. However, it will not change the overall limited supply situation.
The global shrimp industry is cautiously emerging from one of its worst periods in history. Low prices unseen for at least a decade, combined with high costs due to El Nino-induced shortages of fishmeal, made shrimp farming unprofitable globally.
In early 2024, prices in the West bottomed out and are now gradually normalising. This is partly due to Western demand stabilising, while key producers like Vietnam and Indonesia have also reduced their supply.
Nikolik said that US shrimp imports decreased but improved in early 2024, partly due to buyers purchasing shrimp before countervailing and anti-dumping duties took effect.
The price recovery is still tentative in the second half of 2024, as Chinese demand remains uncertain. Lower feed costs and the promise of improved prices are triggering supply growth, led by Ecuador, India, and Vietnam. A new oversupply situation remains a key risk for prices in the second part of 2024.
Improved market conditions in the US and EU may offset a potential decline in imports from China. The industry is relieved that the tariffs imposed in the United States, although unwelcome, are lower than expected. However, the full impact of the antidumping and countervailing duties will become evident in the second half of 2024.
Feed costs are expected to decrease in the second half of 2024 as the supply of fishmeal normalises, which should improve farmer profitability.
Overall, the second half of 2024 is expected to bring modest growth in farmed shrimp supply, driven by Ecuador, India, and Vietnam. Whether prices improve will depend on demand from China. Ecuador's plans to expand into Western markets will increase competition with Asian suppliers, influencing the uncertain prospects for price recovery.
"Since China's import market might be difficult, this growth of Ecuador likely will have to be in Europe and the US, and that makes them even closer in competition with Asian countries," said Nikolik.
In early 2024, the year-long El Nino concluded, significantly reducing anchoveta biomass and causing a decline in Peru's fishmeal and fish oil production. By April, with normalised weather conditions and increased biomass, Peruvian regulators reinstated a quota of 2,475 million metric tonnes (MT).
In the second quarter of 2024, the Peruvian anchoveta fishery sector rebounded, leading to robust production of fishmeal and fish oil. A 100% catch rate and high yield of fish oil marked a successful end to the season. Prices for fishmeal decreased, although they have not yet returned to pre-El Nino levels.
"Expectations are that aquafeed costs could decrease by 5% to as much as 10% in 2024," said Nikolik. "Fish oil yields have been good, which will help alleviate high prices. Soybean has reached a low price point and fishmeal and fish oil have corrected, so we should see lower feed costs overall. I think that's the most important news for the sector."
Nikolik noted that another successful fishing season might be needed for a complete price correction. With La Nina conditions expected, good fishing is anticipated in the second half of 2024, leading to further normalisation of fishmeal prices, which currently remain relatively high compared to soybean meal.
- Global Seafood Alliance
