The Fish Pool prices have come down a bit. But, this has been...

The Fish Pool prices have come down a bit. But, this has been expected. So I wanted to know: has the spot price come down more than expected, or are Tassal still able to make 'super profits' in 2022?

The main exporting period for Australian salmon if you remove the post-Covid inventory build-up is August to January. @bug1 has posted a lot of data showing the ComTrade data where you can see the trend. In 2020 the export volumes were a fraction of normal levels due to the air freight constraints, and so the build up was wound back in 2021/22 which is why the volumes were higher than normal. But we should see a return to normal cycles now. The main difference for Tassal pre-covid vs post-covid is that Tassal has more exposure to the spot/wholesale markets, and less volumes contracted to the supermarkets.

So you can see here the fish pool prices have come down heavily, particularly in NOK vs EUR because of the exchange rate issue (Euro has collapsed):



You can see in the highlighted box that the future prices for Tassal's main exporting period is 75-80NOK. Looking back at the data from 11 May (3 months ago, see chart below), there has been absoloutely no change. In fact, the prices if anything are higher going into 2023 which perhaps allows management some greater flexibility in their inventory management.



Also it's worthwhile to note that these prices are really driven by European/North American trade. These have their own dynamics, and while they are useful proxies, there are differences with the Asian trade market. Again, the ComTrade data from June is showing substantially higher prices than the NASDAQ salmon price. I think this bifurcation is somewhat structural, partially due to the CIF vs FOB price difference (cost of shipping), and because of limited supplies to Asia from South America. So hopefully Tassal in this upcoming export season should get a premium to the NASDAQ.

Prior to the Covid-19, the long term cost of production for Tassal was around 40NOK and the export prices were around 55NOK. We can now see that that at a minimum the spot prices will be 70NOK and probably closer to 75-80NOK. There is nothing in the data that says my earlier comments of "75NOK is the new 55NOK" isn't holding true. Indeed, global supply constraints and a 3-year lag time from CAPEX to biomass implies to me this will hold for some time.

Here is a 6 page report from the Norweigen Credit Agency in March 2022, outlining their expectations of elevated salmon prices for at least the next three years:
https://nordiccreditrating.com/uploads/2022-03/NCR_-_Salmon_prices_likely_to_remain_strong_as_COVID-19_recedes_1.pdf

Thinking of margins, on the cost side we are likely to see that input costs peaked in April 2022 and are now coming down. Around 45% of production cost is based on feed, and about half the feed is grain based (wheat, canola, etc). Wheat prices have already peaked, and is now trading BELOW the Feb 2022 at the start of the Russia/Ukraine war. Oil prices and shipping costs in general have also come down heavily. It will be interesting to see what the total cost of production is for Tassal in the upcoming report, as I suspect that will be the high water mark.

My investment thesis of above-normal margins in FY22 and beyond remains in tact. 11 more days to the annual report. GLTAH.