Long Year – No Place to Run/Hide
At the end of March we talked about the psychology of the market. Well it is time to discuss some cold, hard facts (apologies to Coors and ESPN). Everything that we see and can infer indicates that there will NOT be enough oil in Spain to carry over into new crop. Let’s look at the simple math.
- Carry Over Tonnage heading into new crop – 400,000 tons.
- Crop was pegged at 760,000 tons.
- Total Available Oil – 1,160,00 Tons of Available Oil.
- Local Consumption in Spain runs between 45/55 tons monthly.
- Exports normally run between 50/60 tons per month. In previous newsletter we indicated due to the low prices and large 2014 crop, the combined exports and local consumption ran close to 135 K tons per month in 2014.
- Exports / Consumption for first quarter were all over 115 K tons per month.
- April numbers were 92 tons (combined).
- Math tells us that there will be very little carry over come Nov. 1, 2016.
Luckily, Tunisia had some nice volumes to export. However, the Tunisian oil availability is all but over. Italy had a disastrous crop and it does not appear there will be much help in sight with the much publicized disease in the trees. Italy has not kept up with the care and new plantation in the olive oil industry. Although, they (Italy) still are the largest buyer of olive oil worldwide to fulfill their export requirements. US buyers will have to get used to knowing when/what/how much Italian packing companies will be buying worldwide in order to time their purchases so not to be left behind.
This is what has transpired over the past 14 days. Italian olive oil companies and trading speculators have been scouring the available oil worldwide, leaving their mark in every country they pour into. Argentina has fresh oil and export availability. After the large demand coming from Europe, Argentina is now priced higher than Spanish extra virgin. Turkey was showing signs of being able to start exporting some refined oil, but sure enough, buyers came in and quickly turned a good export situation into a bidding war on getting the refined oil sold from Turkey.
We have 6/7 months to go before new crop. There is very little argument that availability will be scarce, even if Argentina and Turkey find the right levels to export here to US, and take some pressure off the fast paced price increases going on.
WORLDWIDE FINANCIAL CRISIS
Some of the GREY in Europe seems to be working its way out of the economic malaise, leaving the Greek situation aside for a moment. It seems, due to the harsh sanctions, that Russia will be next issue on the table. Although, if sanctions got lifted that would give them a boost as compared to Europe where they still have to be concerned with unemployment – specifically the young adult levels.
In US, it is hard to comprehend, but discussions on the next Presidential election are already heating up. The question is – will they want to talk/debate real solutions or just take positions to get through primaries and ultimately to try and win the elections. Hopefully the average American wants to have a government that tackles and offers solutions on REAL issues. Higher wage jobs, infrastructure, immigration. These three areas must be addressed for us to really generate economic growth.
COSTING BY PRODUCT – BUYING RECOMMENDATION
EXTRA VIRGIN: As stated in last newsletter, it will be difficult to competitively buy good quality EV as time moves towards new crop. One does not have many options but to cover their needs. The BIG decision is how far out to cover. Budgets and nuances of each one’s business will be important discussion to have in order to make thoughtful and best decision on how far out to cover. Our best recommendation is to be covered until end of October; some will need coverage until new crop will be able to arrive here in US (end of December).
Please note, that due to the expected low carry over, price reductions heading into new crop will / or might NOT be as discounted in years when the crop expectation appears to be good.
REFINED/PURE: No doubt refined will FOLLOW EV prices upward. It appears that exporters will allow refined olive oil prices to be too far away from EV costs. Our recommendation is to cover as you do on EV.
POMACE: Most stable item this year. There is plenty of crude pomace; for sure, pressure for price increases will follow, to keep pace with EV and REFINED. The availability will not be an issue. One needs to be cautious as the other olive oil prices rise, increased demand for pomace could occur. That could lead to prices rising quickly. We see no reason for the price to go down, so coverage until next February arrival seems like a good place to be. Certainly, no less than 90 days.
***** 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
March April May
AVERAGE 1.084 1.079 1.125
HIGH 1.119 1.102 1.144
LOW 1.049 1.058 1.114
Euro inexplicably strengthened during this period. Trading over than the HIGH for April. Hard to understand, as the Greek bailout still hanging over this currency. We have learned a long time ago, not to predict what will happen with this currency relationship.