Short Month Just Completed, BIG Decisions To Be Made
February is in the books, and it really went by quickly. The crop keeps marching on, and the production seems to be on course. With the weather warming up, unless some heavy rains come, the crop will be as predicted. Many of you read that the Spanish producers are really having a hard time with the prices being paid for the oil by the market. They petitioned the EU to take 200,000 to 300,000 tons into EU Storage, in the hopes that this would take some excess inventory out of the market until a later date. The thinking was that the last time they did this; the market went up approximately 200 EURO per ton, which gave a needed boost to the growers. I think if my memory recalls that was during the summer of 2009. This is not a horrible idea except 2 important factors are in play at this time.
- The financial crisis, specifically in Spain, does not play out too well to EU ministers who have to approve such a decision. And if the decision is based solely on Spanish financial status, I guess that answer is fairly evident.
- Buying habits specifically from one large international company has completely changed, and the practice of buying LARGE blocks to jump start the pricing model is not occurring any longer. Mainly due to the lack of available monies available but mostly it is much more orderly for the market (not so much the sellers) to buy as needed only for inventory and confirmed sales. The growers were lamenting the low prices on the Spanish supermarket shelves. When one cooperative jumps at these sales it is hard for others to HOLD the line with pricing, as the consumption in SPAIN, is HUGE, missing out on this business without REAL firm sales elsewhere or exports sales, leaves the growers in a rather difficult situation. Last week, the EU turned down the petition to STORE oils for the olive oil growers.
However that does not end the decision making process for US buyers, the crop will be over in plus or minus 30 days. At that point, the olive oil producers will have some say on where the market will grow. Past history and experience tells us the prices do spike at the end of the crop, and usually remain stronger until June or early summer where another decision is made to balance current inventory at that time, to the HINTS of the new crop. Here again, in both decision making periods (end March – summer) the lack of a large significant buyer will keep things more orderly in terms of pricing. The NEW factor in the equation from recent history is the financial situations, the size of the world wide crop and the plantings worldwide that will be coming ON LINE for production in the not too distance future. This all does not bode well for growers in Spain until worldwide demand increases dramatically.
Politics and Financial
This is becoming more and more a part of the discussion in all imported items. The new Food and Safety Regulations will be an increased expense for US importers. CT PAT is becoming more and more involved and this has a cost to it. As we vet all our suppliers for their financial stability, all our customers are also inquiring about their suppliers’ liquidity. The confrontations on the union contracts – massive state debt – the 2012 election, ALL will come into equation when talking about imported foods. Obviously the enormous events in the Middle East and the transitions that occur after the revolutions will be important pieces of a rather complex imported foods environment. The events in the Middle East have drawn some attention away from Europe’s financial issues and diverted them to the minute by minute US issues with unions, oil prices and governmental philosophy we are experiencing. Worldwide prices on FOOD have gone up dramatically. In the end it comes down to buying and selling / supply vs. demand. But all the strife has caused currency markets to fluctuate wildly, thus making imported goods more expensive.
Costing by Product – Buying Recommendations
EXTRA VIRGIN – I stated that the EV raw material price would rise, well that did not happen in February. I still feel that raw material will go up, but it looks like that may not happen until after the crop is over. I hold to my 90 day inventory recommendation.
PURE/REFINED -The market jumped in February by 50 EURO (.23 cents per gallon). I am guessing it had to do with the intervention of inventories being pushed by growers to take 300 thousand tons from the market. Since the announcement, the raw material has retreated and I suspect you can buy now at the same levels you did in January.
POMACE- Nothing substantially has changed since last month, just a note of caution. There is cheap pomace being imported from Tunisia. By itself the oil is out of IOC specifications, and the color is on the red / brown side. Some importers are blending this Tunisian pomace with virgin olive oil or other in-specification pomace to bring in within IOC specification. There is nothing wrong on the surface with this practice. But the issue, remains ASK the question of your suppliers of where your purchases are coming from. Are the raw materials ALL within specification from the producers on up…? Make sure you understand the difference this will make in the color of your deliveries from past deliveries. This, of course, may not make a bit of difference to you, but at least you will know exactly what you are getting.
Currency Facts – Euro vs U.S. Dollar
Another tumultuous month and not a good one for the US Dollar. March is an important month for the exchange. If you have no position on EURO, you will be paying quite a bit more for your landed product. We are here if you want to come up with a conservative Currency Plan.
Here is a link to the February Euro…and much more
Donald Griego, AMD Oil Sales LLC