Decision Time 2014 – Olive Oil Style

By Don Griego on

As the US voters turned out this week to decide Senate, Congressional, Governors and many local representative and amendments. It is almost time for buyers of olive oil to make some crucial decisions to start the process from the new crop harvest.  Later in this newsletter, we will go over some important facts to consider as you navigate through the process of planning for new crop. SIAL was an important place for exchange of face to face concepts and facts/figures. Spain released official figures the Friday (24th) after the show. The Jaen authorities also released a figure as well. We think the best number to use would be the 784,000 tons TOTAL that Spain will produce. Please remember the last 2 years; this estimate has been wrong by as much as 50 %. I do not think it will be that much of a difference. For the decision making process, it would be a good idea to use the 784 – 800 thousand figure for the math portion of the exercise.

Unlike Voters, olive oil buyers can change mid-stream and digest some new information and market changes. This will NOT be an easy market to forecast long term – meaning past June 2015 forward. The production and carry over is hovering at an uneasy level to predict how the prices will react. If we learned one thing from last summer’s spikes in the prices, it is, one cannot get comfortable just because there is enough carry over heading into new crop. Last season, there was really only one choice to source from on BULK quantities. Spain controlled the inventory and the unpredictability of new crop. This enabled some very forward thinking companies to take advantage and spike the market significantly, not once but twice. One of the unknown factors is what the unofficial carry over will be. The official carry over will be 400,000 tons. The unofficial carry over – goods in private sectors hands not accounted for could be close to another 100,000 tons.

Country Production and Carry Over Recaps

Country             Carry Over             Unofficial          Production          Unofficial   Consumption

Spain 400,000 500,000 784,000 800,000 533,000
Italy negligible *** 280,000 200,000 650,000
Greece negligible 280,000 300,000 225,000
Tunisia negligible 280,000 Over 300K
Turkey negligible 20,000 194,000 Over 200K 125,000

Marketing Order / ITC Report  Farm Bill / California Olive Oil Commission / Australian Olive Oil Association

Things were relatively quiet in Paris about these topics. There was discussion about the Spanish Investor Group that owns a prominent Californian producer trying to buy an Italian Olive Oil company. Other than that, not much to report. The elections last night which flipped the Senate will lead to new leadership on the committees in the Senate. So the import community will be on alert for any discussions about the 8e provision being brought up again in Congress.

Worldwide Financial Crisis

The 64,000 dollar question is will the Republican’s takeover of the Senate be a pivotal point in breaking the gridlock in DC? It is very strange that unemployment numbers are moving in the right direction, gas prices are falling, growth is slow but there is growth in certain areas. Why does it feel like a great malaise is still hovering over our economic condition? Will the control of both houses of Congress lead to legislation that will help the middle class directly? Or will we have more of the same old tired party lines that have us stuck here? Here’s to some important legislation that can make the majority of our citizens’ lives better.

Costing by Product – Buying Recommendation

EXTRA VIRGIN:  We got this one right from last newsletter. Coverage was needed until new crop shipments can arrive here in US. The harvest is slow in Spain, and not yet underway in a meaningful way in Turkey and Tunisia. Therefore, prices for PROMPT shipment have not gone down, they are a little firmer than last month at this time. The market right now appears stable but firm. Once Tunisia and Turkey start offering, we could see some short term softness. MY best recommendation is to BUY on the dip from today’s prices. The important question, which we do not yet have an answer for is, how far do you contract out for? First Quarter? Market can go two ways: 1. Get a tad softer, and rebound when demand moves aggressively towards the production, which in turn will once again spike the market. 2. The ability to purchase from several sources, will keep the market from rising upward.

I cannot honestly say what will happen with the extra virgin at this point.

REFINED/PURE:  Since last newsletter where there was a little dip in costing, market has firmed. That is no doubt related to the fact Spain is the only place to obtain refined for prompt shipment and especially before new crop. If you can hold off for another 2 weeks that would be long enough for the markets to take shape on refined. Spain, Turkey and Tunisia will have exportable quantities.

POMACE:  Continue to buy as needed; normally crop does not start until end of February when the majority of pressed cake is available. As on refined, pomace crude will be available from more sources, which was not the case last season with Spain being the majority producer of crude pomace. We do not see pricing on this item to be problematic this crop season.

**** All these suggestions are based on a stable Euro **** we have instruments in place to keep the currency stable with the flexibility to take advantage of a stronger dollar.

Currency Facts – Euro Update

Dollar continued its strengthening in October. Decent economic news here versus a very fragile European economy has made the US dollar a safe haven. Even lower gasoline prices have not hurt the dollar recovery. Even the stock market spikes and declines have not played negatively on the US dollar vs. the Euro. The news of several European banks that did not pass the bank stress test has not helped the Euro. If the US Congress can pass some job creating measures, one would expect a stronger currency.

AVERAGE    1.26735

HIGH            1.2885

LOW              1.2500

Market Update

Consistent information during the next 6 weeks will be required to keep a good finger on the pulse of the market. This will be the most confusing market in recent memory.