Tis the SEASON – Almost
Tis the SEASON _ Almost
Two months since my last newsletter. The harvest is finally underway. Hard to believe that the Spanish crop will be over 1.4 million tons. One knows that the Spanish crop will be huge, when they are already talking about next crop (2015) being shorter due to the lack of rain during the harvest season. First the rain delayed the early picking, and now the lack of rain is going to affect the tree’s health for the 2014/2015 season. That might very well be, but there is a lot of time for rain to positively affect the trees. Nevertheless, the crop is still not in full swing which is pretty late.
Some respected people are thinking that the crop could TOP 1.4 Million tons, closing in at 1.6 Million tons. I think it is premature to get to that size, but at this point, not much will surprise me. Let’s look at the estimates we made back in October:
Spain over 1.3 over 1.4 heading north
Italy less than Normal 350 tons
Greece 160/180 200
Tunisia 90 75
Turkey 120/140 150/175
Morocco over 100 k 125
** Turkey’s export quantities will be greatly affected by how much oil from Syria makes its way into Turkish producers’ hands.
The pricing has already plummeted off last year’s level and continued lower off October’s price level. It will not be a great year for farmers to get a good price per kilo; they will have to make it on volume sold. We will go over costing later in the newsletter. It has always been harder to calculate what to do when the market is falling, the mistakes can be heightened, than in a firm market.
Marketing Order / ITC Investigation Report / California Olive Oil Commission / Australian Olive Oil Association
Like a Broken Record, the gridlock in Washington DC continues to amaze the people that care. The Farm Bill is a long way from being resolved. We are on high alert to see if the 8E provision makes its way back into the conversation on the Hill. Although, since this Congress has done basically nothing, and is polling as the worst Congress – EVER, it does not appear a compromise on the Farm Bill will be reached before they are off on Holiday.
Here is a link to an OLIVE OIL TIMES article on the Australian game plan which is being mimicked by the California Commission. I would expect this type of dismissing the entire pure olive oil category as the next step in the misleading and industry financed campaign to discredit 98% of the world supplies.http://www.oliveoiltimes.com/olive-oil-business/australia-and-new-zealand/australian-olive-association-claims-about-imported-oils/37281
Interesting enough, the Australian Producers have not advertised the standards they are using are not mandatory but are voluntary; and when they tried to get them mandatory it was rejected by authorities. Similarly, the standards do not recognize pure or olive pomace oil. In California a commission is being organized with similar type of policies. Unfortunately, the USDA has voluntary standards that the Californians pushed for… and now do not want to let them become mandatory. The Import Community welcomes these USDA standards to become mandatory and finding a path to include organoleptic testing for extra virgin. Importers are ready, willing, and able to sit down and find a solution to move the industry forward. I must admit, and with admiration, how less than 2% of the world supply can take an aggressive approach in dictating what the other 98% of the world supply will, should, and MUST DO.
Worldwide Financial Crisis
Our Congress continues to do nothing about our economic malaise. While the news from Europe continues to be on the quiet side, even some good news on a recovery in England. Although a bi-partisan budget deal was made this week, and we should be hopeful that this may lead to other agreements that might get our economy moving. Let’s see how the Budget Deal works through the House and Senate. That will give us some foresight on how negotiations on different Legislative matters will go.
Costing by Product – Buying Recommendation
MOST IMPORTANT FACTOR IN COSTING IS THE DOLLAR EXCHANGE
EXTRA VIRGIN – Our last message in October advised to reduce your position. That turned out to be pretty good information. The crop however is very delayed and the draught continues to be a problem. But if rain comes you will see continued weakening in pricing. Our short term recommendation is to extend your position to the end of January. In January, you can start thinking about longer term contracts. We should be able to give prices out to at least August arrival. Not sure if that would be an effective strategy but having this option is always a good way to have a hedged position.
PURE/REFINED – This category will be plentiful in supply this season. Continue on a normal lead time inventory turn. Playing the currency game will be super important in keeping your costs under control.
POMACE – Prices continue to weaken. Every week it seems to come down. Do not really know where it will end. Normally there is a link between the price of refined olive oil and some European based vegetable oils. But the distance between those links and the olive pomace price is quite severe. My experience tells me that the bottom is approaching. However, something seems to be a bit different. Many new players are entering the market and current players seem to have excess capacity. So it is a little atypical from past experiences. We are not near the historic low costs for pomace. So, be cautious until the dust settles. As stated, pomace purchases are usually most advantageous after the harvest is almost all crushed and the cake is readily available. Stay Tuned.
Currency Facts – Euro Update
Well, the Dollar has taken quite a beating, with the Euro as a main beneficiary. Therefore our landed costs are under attack, and just buying the product at the lowest/right time in Europe, BUT not having a game plan on dollar coverage is counterproductive.
October November December (12/12)
Average 1.3637 1.3496 1.3654
High 1.3832 1.3738 1.381
In October, if you bought oil at 1.00 per pound using the average EURO for the month… This would be the difference between the high and the low:
October High – 1.013 lb. Low .987 lb.
November High – 1.016 lb. Low .983 lb.
So the basic idea is to cover the EURO at the average at worst hopefully leaning towards the LOW of the month.
This season will be much easier for planning and forecasting your oil purchases, however, the dollar will play a major role in your landed cost.