How to Profit From the Chilean Salmon Shortage

salmon shortageBy 2050, the world’s population is expected to reach 9 billion people. How are we going to feed all those people?

One answer is aquaculture. In other words, farmed fish.

Aquaculture has been the fastest-growing food production sector over the past 20 years. That growth propelled seafood to become the highest-traded food commodity by value. Today, 3 billion people now receive 20% of their animal protein intake from farmed fish, primarily salmon.

The fast growth in a normally slow-growing food sector caught the eye of a couple of big players. Thanks to acquisitions, two of the three largest companies in the fish-farming sector are now privately held agriculture giant Cargill and Japan’s Mitsubishi Corp. (OTC: MSBHY).

There’s one company in particular though whose sole focus is salmon farming. But first some background on what is going on in the sector.

Salmon Shortage

At the moment, the seas are not calm for salmon farmers.

You see, unusually high sea temperatures in the Pacific Ocean – thanks to El Niño – have led to toxic sea algae blooms in fish farms in Chile. That country is the world’s second-biggest producer of salmon, behind only Norway. The Scandinavian country produces about half of the world’s salmon.

Nearly 24 million fish have died in Chile. Salmon output therefore is expected to fall by about 100,000 tons this year to 590,000 tons. That is down 15%-20% from last year’s level. In response, Chilean salmon prices have spiked by 25% to $5 a pound just since December.

The overall result will be a salmon shortage. It’s unlikely Norway can fill the output gap. It was hit by a disease outbreak last year, so its production is also down.

Norway Benefits

But that turns out to be good news for Norwegian salmon farmers. Norway was already enjoying a competitive advantage over Chile thanks to its farmers using far fewer antibiotics than Chile’s.

Even though they cannot fill the output gap entirely, Norwegian salmon farmers are exporting record amounts of salmon to both the U.S. and Europe. In 2015, sales to the U.S. soared 33% to 626 million Norwegian kroner and exports to Europe rose 15% to 35 billion Norwegian kroner.

Norway’s salmon farmers are enjoying prices not seen for their salmon in 30 years. The Norwegians are also benefiting from a weaker currency. More than half of their costs are in kroner. Meanwhile, their sales are mostly in U.S. dollars or euros. That translates to higher profit margins.

So it all looks good for Norway’s salmon farmers.

Marine Harvest

That brings me to my stock pick in the sector, Norway’s Marine Harvest ASA (NYSE: MHG). It is the world’s largest farmer of Atlantic salmon, satisfying one-fifth of global demand. It is also a supplier of fish feed, where the company is experiencing record demand.

It also has operations in Scotland, Ireland, the Faroe Islands and Chile. So it also has to deal with the algae bloom in Chile. But that isn’t stopping the company’s aggressiveness. It is the biggest consolidator in the industry.

Marine Harvest had production of 420,000 metric tons of salmon in 2015. The company says that more than 5 million seafood meals from Marine Harvest are enjoyed every day.

Marine Harvest is a leader in using environmentally friendly farming methods. It joined the Aquaculture Stewardship Council, which is championed by the World Wildlife Fund.

All of this good news has not been lost on investors. The company’s American depositary receipts, with a $7 billion market cap, recently touched an all-time high. That is despite billionaire John Fredriksen selling a $510 million stake in the company – no doubt to offset his losses in the shipping sector.

Marine Harvest stock is now up about 26% over the past 52 weeks. And it is up 140% since the company listed on the New York Stock Exchange in 2012.

And there’s a nice kicker here for income-oriented investors. The current yield on Marine Harvest is about 4%. However, its dividend is not fixed. It floats, depending on how well the company does.

My expectation is that Marine Harvest will continue to do well as a leader in a growth industry. I also expect the dividend to keep growing as the company does.

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Published by Wyatt Investment Research at