Light at the end of the Tunnel – Or is it oncoming Train?

By Don Griego on

We cannot tell you how many different questions we are getting on WHAT to do with olive oil positions; short term – mid-term – long term. We have been spoiled the last 3 years with an overabundance of supply. It is has been quite easy to take sales contracts to 12 months, and only have to worry about covering the dollar exchange. Obviously this crop season has been anything other than smooth, coupled with the major distractions of the FDA pesticide issue, the Marketing Order / 8E provision, and the ITC Investigation. This made for a very intense period of decision making, which will continue until new crop starts coming in a meaningful way. Just because indications seem to be a good crop in Spain in the upcoming season, there are still a great deal of timely decisions to be made before that good crop estimate turns into a stable market for 2014, just a heads up, it may NOT be as stable as one may think. World Wide Crop from third countries saved this season from prices being at historic highs. Will the third country harvest assist in supplementing Spain’s crop? That is an important question as you move into your 2014 coverage.

As we touched upon last newsletter, consumption and exports in/from Spain remain the critical components to your strategy until new crop potentially eases price tensions. On the other side of the ledger is your demand and current inventory positions (both in stock and in unshipped PO’s) will have an impact on what your pricing does. These factors will be different for each category of olive oil. Where will that demand in Europe come from? Certainly now that Greece is almost dry, the Italian buyers will be going to Spain to cover. Turkey and Tunisia are pretty much done with good quality EV. This is where it gets confusing, demand is picking up, consumption and exports from Spain have been increasing. YET, no significant price increases have taken hold. That is a perplexing situation for a buyer. All known factors point to a spike in the EV market. It begs the question, is that the end of the tunnel or an oncoming freight train?

Marketing Order – ITC Investigation / Update

Most of us have put a great deal of time and effort into a program to have it come down to a quick / rushed final conclusion. After many hours, time and effort, the 8E provision was brought to a vote on the House Floor. An amendment was proposed by members of the House who were against this 8e provision to add Olive Oil to items that domestic marketing orders can attach to. This was certainly a moment of truth for importers, a make or break conclusion to everything we have been working towards. A sound defeat would make for a difficult discussion in committee between the House and Senate versions of the Farm Bill. Our leadership was not sure that a debate on this issue would serve our best interests, but house members and their staff were simply outstanding in pushing forward and gaining a resounding victory of stopping the 8E provision from attaching to the Farm Bill. This was a culmination of a great game plan and a large number of people hard works. NOW, we will see if the Californian, other domestic producers and Australian industries will bring a Marketing Order to the USDA without attaching imports. My guess and I have been saying, they will not. We have to be cautious, as the 8E provision can be brought up in other legislation and even the Farm Bill as after all that debate, the House did not pass that version of the Farm Bill.

An important note is that importers are pressing forward to see if the FDA will make the USDA voluntary standards – mandatory, as a start to increasing quality standards. For many importers, and for certain AMD is already pushing ahead  of  IOC recommendations on methyl esters, myristic acid and even lowering our k 232 values at time of loading.

Lastly, the ITC Investigation report will be out on August 12th. This most certainly bring in some definitive findings that both sides of this argument will be extremely interested in. We will have commentary on those findings, in a BLOG shortly after the results are published.

Worldwide Financial Crisis

Well, Portugal has finally entered the fray in a newsworthy way, bringing the EURO down from a stable/rising trend. In Greece, controlled discussions on austerity are taking place which in the financial circles seems very civil, unfortunately not so civil on the streets of Athens, etc…

Costing by Product – Buying Recommendation

EXTRA VIRGIN – Certainly the most difficult item to gauge. Some large buyers – thinking like large buyers, see a possible big crop coming and think that costs will come down. That is certainly a thought. But in my opinion, not the best course of action to partake in. No one is right 100 % of the time, so it is prudent to have a % of your needs covered until a point in time. Defining that point is critical to your whole strategy. For industrial buyers, that point in time should be about mid-January, which will give you time to let new crop start and have an influence on the market prices. The next question is what percentage of your requirements you should have covered.

Once you have those two critical factors established, put a game plan into place, as soon as practical. Not many shippers are willing to hold shipments past 45 days from date of order, BUT it is more lax now than at the beginning of crop. So you may get some traditional suppliers of yours to extend shipping periods. AMD can offer you coverage until end of December on Extra Virgin.

PURE/REFINED – Market remains stable and raw material should not be an issue.

POMACE – Still a difficult item to predict future prices. We recommend caution but summer shutdown may affect getting product here if you do not give enough lead time. 60 day coverage is recommended.

Currency Facts – Euro vs. U.S. Dollar

Dollar trended higher in June than May. That trend was broken first week of July with Euro retreating to below 1.28. It seems any time Euro falls below 1.29 – it is a good time to purchase forwards contracts out. How far and how much is really up to your particular requirements – but a good game plan.

May                 June                 July to Date

AVERAGE                1.302               1.317                 1.292

HIGH                        1.324               1.341                 1.307

LOW                          1.279               1.294                1.275

We will be starting our NEW BLOG… in very near future. There may be a change in how we deliver the Monthly Newsletter. We look forward to more frequent updates on important issues that are important in the olive oil trade.