Race to the Starting Line

By Don Griego on October 11th, 2013

Not much has happened in the olive oil raw material market since our last newsletter in August. The past 60 days went by rather quickly and the most significant developments in the olive oil world were the ITC Report being released and the formation of a Californian Olive Oil Commission. (more on those later in the report)

Prices have softened as we head into the new crop. This past weekend I was at Anuga having early discussions on what the new harvest will mean to buyers in all sectors of the business.

Currently prices on extra virgin have softened and one would think that IF the carry-over was going to be short, that prices would start to spike. Now several factors go into moving the Extra Virgin market. Available Crop, buyers’ inventory, new crop estimates. Let’s look at each of these. New Crop estimates, there is no doubt that this year’s harvest worldwide and certainly in Spain will be larger than last season. That fact would lead to at minimum mid to late December prices being softer. US Buyers are pretty much full of inventory, as most anticipated a more acute shortage of EV heading into new crop. European buyers due to the high prices of raw material only really bought month to month and should have an appetite once prices start to soften. If they take early position the market could see a nice jump until raw material catches up with shipments. Which leads to the question of available crop? Until demand picks up – it appears available crop will be enough to get the new season started. You can possible see a spike in late November/early December as buyers who are short start to take the early harvest. Italian buyers are notorious for this practice, and since Tunisia will not have a significant crop – it is possible they will start earlier in Spain as the Italian and Greek crop are not expected to be in the normal range.

So beware, the market may very well be a roller coaster once buying commences. Understand your inventory position, understand the lead time to get product to your facility, anticipate seasonal delays in container availability.

Producing Country Expectations:

• Spain – estimated at over 1.3 Million tons, with more carryover than expected.
• Italy – less than a normal year.
• Greece – Certain areas are severely short, overall crop will be 160/180 k tons
• Tunisia – Less than last season.
• Turkey – Less than last season, but still significant at 120/140 k tons
• Morocco  — Growing production, will have exportable quantities over consumption

Marketing Order/ ITC Investigation Report / California Olive Oil Commission

The gridlock in Washington DC leaves the Farm Bill negotiations stalemated. Currently the 8e provision is not attached to any particular piece of legislation, but we are sensitive to the possibility for this provision to be brought to the House Floor again, and are still on alert in the event this provision once again becomes a topic for discussion.

Well, after a bit of a delay, the ITC rendered its report on the Olive Oil Market. Although not a ringing endorsement of imported oil, the report was rather neutral in its total effect on the conversation. The MOST IMPORTANT concept was to make standards mandatory and as the importers have been fighting, for a long time, and certainly well before the USDA even established voluntary standards. AMD would welcome the USDA standards to become mandatory and have them enforced for product in the market place.

My take on the efforts of the Australian and Californian Olive Oil Trade, is they want to create a new category for extra virgin, which is fresh squeezed and as quick to market as possible. It is certainly something a smaller production area can manage. It is not so easy for mass producing countries to accomplish. Of course, it will be more expensive, for the purist who want this type of product for their homes and favorite restaurants. So while pushing that concept, they have to try and destroy/disparage the other 98 % of the world’s producers with self-sponsored studies which cannot be duplicated. They do not even recognize the existence of the other olive oil varieties. Let’s put it in perspective, the olive oil market in the US is over 300,000 tons. The production in California is guessed at 6,000 tons. The claim with higher shelf prices for this product or more to the point, LESS of the traditional extra virgin on the shelves, production will grow and create a production rivaling Spain’s production. At least that is what is bantered about in the arguments against imports. I think one can have a discussion on the elasticity of extra virgin on the supermarket shelf. One can look at the Australian industry for a limited amount of data on it. Since AMD does not sell directly into the supermarket trade, this is not a direct fight for AMD. The issue at hand is that 2 % of the world’s production wants to TAX the 300,000 tons coming into the US market and control how that 300,000 tons get distributed into the market place. Please note the majority of the 300,000 tons coming is not even extra virgin. But this TAX will affect ALL imports. We leave it to your sensibility to determine what position is better for the olive oil market in the United States.

Worldwide Financial Crisis

Well, I have never been one to take seriously what other countries reportedly think of our financial situation. That is until now.  I have been traveling to Europe for over 35 years sourcing food products.  I know and have long standing personal relationships with many friends and colleagues throughout Europe.  We have had pleasant conversation on politics and financial conditions of our countries.  But almost to a person while attending the Anuga Fair were incredulous at the state of our elected officials in shutting down the government. They politely were laughing at the suggestion that the US government got shut down and there is no apparent ability to fix it in a quick and timely fashion.  It is not for me to state my personal thoughts on how/why this occurred.  However, it is incumbent on ALL of us to let our elected officials know how we feel about their performance on the people’s business.

Costing by Product – Buying Recommendation

EXTRA VIRGIN – It is my recommendation that you start reducing your position to be ready to take advantage of new crop pricing.  New Crop has been delayed due to rains in significant growing regions. I think you will see some spikes in pricing for prompt shipment from new crop (mid November – mid December arrivals) as sales are made, prices could strengthen.  But as the crop worldwide starts in earnest, it appears as of right now that prices will soften in Europe on EV.  It is my guess; you will need a position until the middle/end of December. You can soon start negotiating for January arrival and forward through the first quarter, maybe longer as we see how the world wide crop progresses.

PURE/REFINED – Maintain a close position on this item.  You will see a softening in this category as we get closer to new crop arrivals.

POMACE  – Prices are a tad softer than last newsletter.  But the Dollar is keeping landed costs at or higher than last month.  It seems that pomace will continue to soften as the crop comes in.  Historically the best time to purchase contracts for pomace from Europe is end of February when a good amount of olives have been crushed and there is time to handle the cake to get it extracted.

Currency Facts – Euro vs. U.S. Dollar