We just came back from Expoliva in Spain last week. Spent a lot of time in the fields while heading towards the show in Jaén. The fields and the trees looked in very good shape. The blossom appears to be developing at the right moment. The issue remaining for the next crop is water levels. Rainfall is still quite a bit below normal average levels. OUTPUTS in Spain for April were quite low – 92K tons. The exporters were quick to point out there was only 18/19 working days in April due to Easter. Not a factor however that was repeated many times while at Expoliva. Local consumption was down as well, which could be a trend as supermarket prices continue to rise.
Here are some other factors (pro-cons) to consider:
1. With normal OUTPUTS – the CARRY OVER in November will be less than comfortable.
2. The HOT summer is approaching. A key question is whether the water levels are enough to sustain a good crop for next season. Several important growers indicated to me, that the rain in September will be KEY to next crop.
3. Tunisia is expecting a historic crop. (400K tons)
4. How much oil will the Italian exporters need in summer, through to end October.
5. How much oil will the Italians need in Late October – November.
6. Crop in Italy will be better than last crop.
7. Crop in Spain will be better than last crop.
8. Does anyone with oil in Spain want to turn inventory into cash before summer?
9. Does any exporter with oil in Spain want to inventory into cash before new crop begins?
My view, the combination of all these factors will paint the picture of how pricing will go. Unfortunately, not many of these factors are clearly apparent now. You currently have small quantities being offered / sold. Demand will be a big factor in the next 3 / 4 months. If one can predict that, one cannot accurately predict where the pricing will go for the rest of the year.
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WORLDWIDE FINANCIAL CRISIS
Well it seems Europe is on a better trajectory than the US. Not so much in growth, but in certainty. Markets like certainty and our political chaos is getting markets anxious. The EURO is getting stronger due to this as well. Healthcare – Tax Reform – Infrastructure need to be addressed for the US economy to get back on the table for discussion, the markets to move back towards a growth trend. Without serious debate on fixing these issues, it does not appear to me that the markets will react favorably.
Probably the MOST IMPORTANT issue for importers is the Koch Brothers flip flopping on the Tax Reform Plan, which includes a BAT – Border Adjustment Tax. This would be devastating to many importers especially the predominantly single item importers. They had been against the BAT – and now have announced support for the plan. Stay Tuned.
CALIFORNIA OLIVE OIL COMMISSION / AUSTRALIAN OLIVE OIL ASSOCIATION
As things seem to have calmed down from all the negative publicity on olive oil, the NAOOA is continuing to try and send a positive message on ALL varieties of olive oil. We continue to reach out to the domestic industry to see if there are common areas for cooperation. Obviously, there are many things that we can do together to build the industry. The KEY is finding one that we can start with and be successful in working together to build some basic trust. The NAOOA is interested in having this conversation and looking for ways to cooperate.
COSTING BY PRODUCT – BUYING RECOMMENDATION
Well since we have been wrong more than we have been correct in 2017, you may have to look more closely at your own individual needs for the rest of the year. Nevertheless, we will make a firm recommendation. Given the factors discussed earlier in the newsletter will not be decided for a few months, it is our opinion the UPSIDE is more of a risk than the lower price scenario. Lack of possible carry over, and demand that we think it still out there, make this our decision to cover at least half of your fourth quarter requirements. Even fully.
REFINED / PURE:
These items continue to follow EV. The one difference is one might be able to get Turkish product a tad cheaper. The issues with Turkey pricing and shipment are month by month; making it hard to cover more than 60 days at a time.
Pomace continues to befuddle us. Raw material was not limited in production/crush. The only plausible explanation is for this run up in pricing is that a few producers are controlling the available raw material. This strategy will continue to work if the demand is strong for pomace. With EV and refined being so high, pomace was dragged up and it is still a cheaper olive oil alternative.
Our basic economic theory is, when markets are manipulated like this, the fall will be steady and swift. However, WHEN this dip will occur is super difficult to predict.
***** All these suggestions are based on a stable Euro***** we have instruments in place to keep the currency stable with the flexibility to take advantage of a stronger dollar.
CURRENCY FACTS – EURO UPDATE
AVERAGE – last 30 days = 1.09
Volatile month, in our consultant view, no downward movement until Healthcare, Tax Reform and Infrastructure are back on the table and heading towards a resolution.