End Of Crop – Decisions To Be Made
As the end of the crop is quickly approaching – growers, exporters, and importers have some pretty important decisions to make. There has been a revolt in Spain by the producers to have the EU put a large quantity of oil into an intervention, meaning the EU would put approximately 30,000 tons of oil into EU storage at a low interest rate for a fixed period (usually up to 6 months). There is a formula, prices have to be at in order to be able to go to intervention. Prices however are not in formula. But you are seeing, especially in Jaen, a bi-monthly call for the EU to act and save the growers from the very low prices in the marketplace. The growers are blaming the limited number of distributors into the Spanish retail market are colluding with the retailers to sell olive oil on the supermarket shelf below production costs. The blame has spread to sellers who take in extra virgin from growers and “WASH” or deodorized the higher acidity oils back below .8% FFA. A prominent Italian brand has been accused of putting this “washed” oil into distribution. It is obviously sold at lower levels than real extra virgin. However, the growers do not discuss the “repasseo” they put into the market place. “Repasseo” is the second crushing of the olives; that’s right, they press the olives for oil, than take the pulp and remains and run it through the press again, drawing more oil from the remains. The argument is that the buyers of this oil should know not to do the wrong thing with this production. But of course, buyers of this production, which is growing annually (due to new press’s being installed and the old ones used for the second passing), are buying this oil to put into the distribution system. This second pass really should be used as a form of pomace, although a better quality than the pomace we now see in the market place. This second passing is having an effect on the market in both the extra virgin category and more importantly in the pomace category. Maybe not as you think, but more on this topic in BUYING Recommendations.
I have wandered a tad off topic. All factors in the distribution chain are now faced with the decision of what is going to happen with prices. It does not appear that Spain will be able to raise prices until the new crop is easily defined OR consumption/exports pick up. Now the exports/consumption figures are still strong or, better stated, not weak. However, the supply is outdistancing demand, not only in Spain but in most producing countries. The only place that remains a mystery is the lack of exports from Turkey. This normally thriving exporter has been eerily silent since January of 2010. Supply has outpaced local Turkish demand, and yet, no significant exports have been made. It just does not appear there is much reason for the raw material to go up. IF the intervention is approved, IF the consumption goes up, IF the new crop is deemed less than needed. Too many IF’s for me, but stranger things have happened.
Politics and Financial
The truly remarkable events occurring in the Middle East continue to dominate the headlines. The run up of the EURO vs. the US Dollar is depressing as news of Irish and Portuguese bonds being downgraded, with Spain not too far behind. With all the issues in the EU, the Central Bank has presented the possibility of raising interest rates. Is it a manipulation of the currency? We should find out shortly. In the US, a threat of a government shutdown looms. The influence the Tea Party is having on the Congress. President Obama announcing his plans to run for re-election. The eclectic array of Republican candidates that could possibly run for the oval office. These are interesting times.
Costing by Product – Buying Recommendations
EXTRA VIRGIN – Last newsletter, recommended a longer position. I am holding with a 90 day coverage recommendation.
PURE/REFINED – The market has settled on this item, unless the prices for lampante reach intervention levels. I do not think any longer than import lead time is necessary.
POMACE – Earlier in the newsletter we discussed the second passing of the olives. A major effect of those crushing areas doing this is that there is less and less oil left in the cake which makes it unattractive for extractors to take the cake off the crushers’ inventory. It is too costly to go through the extraction process and transport the cake for such a little volume of oil. This practice is not worldwide as of yet, but the available crude pomace oil is shrinking in some producing countries, and certainly refining and production costs are not going down. This will lead to a firming of olive pomace oil as this shortage leads to decreased supply.
Currency Facts – Euro vs U.S. Dollar
Another bad month for the greenback. Bad news from European Union, no problem a stronger EURO. Good news on unemployment in US, no worries, the EURO strengthens. Having a systematic EURO coverage plan is paramount to a profitable import program from Europe.
Facts for March 2011
AVERAGE – 1.4001
LOW – 1.3784
HIGH – 1.4218
Here is a link to the March Euro…and much more
Donald Griego, AMD Oil Sales LLC