Is the Season Over Yet?
This title has a several different meanings. For my friends in the North East, I am positive we are ALL tired of the snow and cold weather. For our friends and clients in the Midwest it has not been much better. So we are all hoping we are on the downhill side of this long, hard winter. For the olive oil business, the crop is well underway and on the down side of the production. It looks like Spain will have 1.35 million tons. A sizable amount by any standard BUT will that mean a soft market on all olive oil items? That will not necessarily be the case. We will go over the varieties in more details in buying recommendations.
The overall worldwide crop production will reach the magic 3 million ton level. But here again, it will not be an automatic safe bet to assume markets will be very soft. At this point, one cannot even be sure that extra virgin will even soften much more than the levels we see today.
Third countries will not be much help on extra virgin, Tunisia – Turkey – Argentina – Chile. Traditional European origins like Italy and Greece have both had poor crops. So the math will not be an easy thing to calculate. Large crop in Spain – YES – leading to depressed pricing, not so fast.
MARKETING ORDER / ITC INVESTIGATION REPORT / FARM BILL / CALIFORNIA OLIVE OIL COMMISSION / AUSTRALIAN OLIVE OIL ASSOCIATION
Well the Farm Bill was finally passed WITHOUT the ridiculous 8e provision adding olive oil to the list of agricultural items that the USDA can attach a Marketing Order. The resolution to add the 8e to the bill was struck down by a landslide over party lines. It was and continues to be seen as a HUGE earmark for a small group looking to grow on back of established industry. Since that was a huge failure, the domestic/Australian industry have started, if I do not say so myself, a really massive, expensive PR campaign. The NY Times even published an absurd “editorial” on the issue. I have to tip my hat to their PR firm – they throw out statements full of half-truths, most of them backed by a Domestic industry study. They have gained some momentum – how much it will affect the debate is still too early to determine. But as the domestic industry underestimated the import industry resolve and organization. It would not be a good idea to continue to underestimate our cohesiveness in fighting back against these unprecedented attacks.
With that being said, this negative approach will certainly HURT all sellers of olive oil. The import community looks forward to working with all companies that want to promote and sell good quality olive oil in the US market.
WORLDWIDE FINANCIAL CRISIS
While Europe continues to fight to bring their debt under control, under very difficult employment issues, our Congress continues to be muddled in …well…nothingness. I guess one could look on the bright side, the budget deal passed and the Farm Bill passed BOTH houses of Congress. It’s a start, but it is hard to be optimistic with the polar opposite views on where the country is and where the middle class fits in the vision of the country’s future. I am not expecting any large deals that will be remembered as cornerstones of a growing 21st Century economy. Quite frankly, our Congress does not have it in them.
COSTING BY PRODUCT – BUYING RECOMMENDATION
MOST IMPORTANT FACTOR IN COSTING IS THE DOLLAR EXCHANGE
We stated earlier that Spanish crop was a good one. Extra Virgin was a good crop, but there will not be many options to source EV this year. Spanish consumption, which slumped last year, will rebound with these price levels and you will see a larger demand on EV in EUROPE. This will mean LESS availability, or could mean less overall availability for the third and fourth quarters of 2014.
- It is extremely difficult to get a consistent profile with Extra Virgin. Product is sold lot buy lot and many are much different in profile than previous lots.
- That is particularly true of when country of origins change, local varietals tend to be very different than a conventional larger volume lots.
- Organic EV has a different taste profile and it changes frequently as the year goes on
- Parameters on ORG EV tend to be harder to pinpoint than conventional supplies.
- Lastly, just because some ORG are more expensive than others, do NOT assume they are better quality. In our portfolio, consistency is super important in giving our customers a value. For that matter just because some conventional EV is more expensive than other conventional EV, it does NOT mean the oil is better quality. Search for value in your purchases.
Our recommendation on ORGANIC EV, is to buy as far out as your supplier will be able to secure product for. This should be done on a rather high percentage of your ORGANIC EV needs.
PURE/REFINED – As last newsletter states, we will continue our recommendation on refined. Third countries have NOT entered the game yet, they may not, BUT the fact they are available will keep refined soft.
POMACE – The overall weakness of the raw material has stopped. Demand has stopped the decline. Prices fell into the middle of January and have rebounded since that point. Typically the end of production cycle, the CAKE for pomace starts arriving for extraction, which leads to crude. Crop was a good one, but prices have NOT softened. Hard to determine what will happen with pomace. Last newsletter said “be cautious due to a declining market”. At this time, be cautious, on both the up and down side. Our recommendation is that you have some coverage through the summer. What percentage that is, depends on your risk tolerance? To be without coverage moving into the summer season is not the ideal position to be in.
CURRENCY FACTS – EURO UPDATE
Dollar continues to be soft, or is the Euro strong? I am sure you are tired of hearing me say this, but if you are buying imported goods from Europe and do not have a strategy, you will be at risk to fluctuations on the currency market.
It seems 1.35 is the FLOOR for the Euro against the dollar as several attempts to fall below 1.35 have failed, and we see it climbing again towards the 1.38 mark.
December 13 January February (td)
AVERAGE 1.3698 1.3632 1.3634
HIGH 1.3983 1.381 1.3773
LOW 1.3524 1.35 1.3476
So the dollar has traded in a 3 ticks every month. It is our advice that position would be interesting when the dollar gets below 1.36 level.