Hard Choices – Where to turn?
Things have not gotten much easier since the last newsletter. The exports and consumption in Spain remain at the 100 thousand level. Low levels of available supplies and the unknown of what buyers worldwide will need will make for some very anxious moments for U.S. buyers in all sectors of distribution. Prices remain firm; and there appears to be no relief in sight. Exporters are not discounting offers and in my mind there is not a need to discount at this time. Of course, some may need some shipments to keep factories working and ease financial balances. Other than that, no one is in a great hurry to make shipments from Spain.
Tunisian Extra Virgin exports are all but done; offers are available, but parameters of the oil coupled with asking prices, does not make for a good transaction. If one can get Extra Virgin with good fluent parameters that is one alternative, however do not hesitate as supplies will not last much longer. Argentina and Chile are clear alternatives with fresh oil. There may be slight natural occurring issues with some parameters. The oil is certainly viable and available. That is the good news; the bad news especially with some Argentine exporters is getting shipments at contracted prices. Throughout my career in imports dating back to 1981, Argentine exporters generally want to do the right thing. However, some (not all) like to make an offer or even a firm contract and then not deliver on agreed terms and conditions. So if you are an importer in this market, one cannot sell on cost basis until you have goods in your possession. Certainly not an ideal way of doing business. This market makes for some strange behavior by some shippers.
We think the crucial question that all buyers will have to answer is when the major buyers of olive oil are covered too. If many buyers are short, well, we will be looking into a difficult summer of prices and escalating markets. In my opinion, it will be very hard to the market buyers to be super long. Olive oil is an expensive item, storing it outside the source is not easy.
The second factor in the psychology of the market is the weather in Spain. The poor crop in Spain should set up the trees to bear a good amount of fruit. The blossom had gone well in most areas. If they get rain at the right time, or a good deal of it, there will be some easing of the market towards new crop. We just got reports there was a good rain in the south of Spain. It will still all come down to the crucial question of: when will major buyers need to make purchases.
WORLDWIDE FINANCIAL CRISIS
Well the deadline is fast approaching for a path to be made for Greece. What that path will be, and where it will take the EURO zone is unknown. It seems like a pretty serious game of chicken. For U.S. buyers, it seems hard to comprehend that the EURO remains at the levels it has been trading at.
While here is U.S. not much is moving forward on the important issues. At some point, areas of common ground will hopefully be moved on.
COSTING BY PRODUCT – BUYING RECOMMENDATION
Prices have risen some in past 30 days, not as much as we had originally anticipated. One cannot buy EV cheaper today than they did 30 days ago. We expect this trend to continue. If we had to guess, the risk of the price going higher is a much greater probability. Our recommendation is to continue your coverage until end of year – certainly until new crop becomes available. Please note, getting super prompt new crop is going to be difficult, getting prompt new crop shipments at lower prices than today’s market may not be that easy as well.
Refined will follow the EV market price trends. Same conversation as on Extra Virgin.
Pomace saw the biggest increase in price of all the olive oil categories in May. Our recommendation to cover until February (last month newsletter) was prudent. The increase is following the trend, and strong demand for lower priced oil made it pretty certain that pomace would get stronger.
***** 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
Last 30 days Average = 1.1144 HIGH = 1.144 LOW = 1.0886
Euro is trading between the HIGH and the AVERAGE. We expect to see that for the foreseeable future. What the foreseeable future is, is anyone’s guess.