Reality vs. Perception – PART THREE

By Beverley Mergl on June 20th, 2013

Just back from Spain and drove over 400 kilometers looking at the land dedicated to olive trees.  Drove from Malaga to Cordoba to Jaen, where the show was (EXPOLIVA).  It’s always a good reminder, no matter how important and the volume of olive oil you trade, you are reminded how insignificant you are as you drive and drive and see nothing buy olive trees/groves.  It is quite humbling.

Since the April newsletter, consumption and exports have slumped in Spain, pretty badly. Although April’s numbers were better, there is an overall malaise for the sales of olive oil. Before the April numbers were made official, the exporters/sellers were depressed, hopeful but depressed.  Even when April’s consumption numbers were released (80 K tons), some relief was exhibited but NO significant SALES were realized.  In visiting the towns and industrial areas where the commercial activities occur (not just olive oil) – it was eerie the lack of commerce that was transpiring.  There was a lack of trucks on the highways as I drove around.  The towns were bustling at dinner time, but for the most part you could easily find a good restaurant to dine at any time.  Overall, it was noticeable how slow the overall economic conditions were.  Even in Madrid, a very busy city, the traffic and overall sense was slower than I remember. The unemployment in Spain will be a huge drag on its recovery.  The banking system seems to have been put in the right direction; the austerity programs have been met with over 200 protests/rallies but have seen some positive results on the numbers.  But what numbers do not tell, is what do the college/university graduates do once school is finished.  Official unemployment is 25 %, and much larger than that with the 20 something’s.

But back to olive oil, there are three markets all occurring at the same time. I will go over these individually in theCosting by Product.  Overall, many speculators in Spain have the right idea – at some point, buyers will have to come to Spain and buy oil as other countries exports dry up.  The MAJOR issue, is when?  Most if not all thought, by now all the major buyers from all large consumption areas would be flocking to Spain and the prices in Spain would expand past the 3.100 EURO per metric ton (EV) the sellers have tried unsuccessfully to maintain.  On my visit, deals with over 10 % reductions were possible, and even lower depending on volume and payment terms.  The speculators are now all very anxious. Although the math still supports their belief, the fact that the rush has not occurred has them spooked.  In the US, most large buyers are covered as far out as they possible can be.  Some major retail brands are promoting aggressively here in the supermarkets. One brand which is somewhat of a factor in retail has inventory that will last them for quite some time.  So I am not sure that the great demand will be coming from US buyers.  Olive Oil consumption continues to grow here in US, but although industrial users are not covered until new crop, there is no sense of panic here to purchase.  I still believe that once buyers start flocking to Spain, prices in Spain will rise sharply. HOWEVER, until that point, do not be surprised to see some major discounts from current market levels.

Marketing Order – ITC Investigation/UPDATE

Well, things have been busy; the Senate took up its version of the Farm Bill, and no 8E provision was put into the legislation, although we are expecting this to be brought up again.  In the House, the 8E was included in the legislation and there was a spirited debate in the committee with Congressman Gibson from NY asking for a vote to strike that provision from the Farm Bill.  Mr. Gibson did a great job articulating our position; we owe him a great deal of gratitude.  It looks like this provision will be debated and be broken down between geographic parts of the country.  We are pressing forward in both Houses to try and keep the 8E provision from the Farm Bill.  As I have said from the beginning, if the 8E provision is not attached to any piece of legislation, the Marketing Order will not move forward.  This seems to be moving in that direction, as several Californian growers are NOT in favor of a Federal Marketing Order.  This is a very fluent situation that will have many twists and turns – but we will try to keep you abreast of what occurs.  Just know, that if the Californians and Australians are successful, prices on olive oil will rise significantly, (on all varieties – including pomace) and distribution will never be the same as every single LOT will have to be tested – not every container, EVERY LOT.

Worldwide Financial Crisis

Things have pretty much settled in worldwide to  try and tackle the austerity measures and get their banking industry to solvent state.  Everywhere but here in the US, where bi-partisan obstruction has reached its highest levels.  The Senate cannot even pass a non-descript piece of legislation that over 80 % of the American people want.  The reasons and conversation for not being able to pass this bill sounded like a skit from Saturday Night Live.  I am not sure how we could ever expect the people in DC to be able to make the necessary changes when the American people are mixed on what economic cuts and changes need to be made.

Costing by Product – Buying Recommendation