Running on EMPTY – Olive Oil Stocks
By now, it has been in most trade blogs and made Bloomberg News as well. The facts are the facts; there will NOT be enough stock to last till new crop. Of course, as prices rise, the purchases and consumption will slow. So physically there will be some inventory moving into new crop. Nothing can really change this situation unless Turkey decides to release some of the oil they should have in stock. Currently that does not look like it will happen and even if it does; it will not be enough to make a material difference. So what can one suppose will happen? There are a couple of scenarios. Most of them will not be good for olive oil buyers. What questions and concerns should we be looking at?
1. As consumption/exports remain at 90 thousand tons monthly through July, math simply dictates that come end October – supplies will be sufficiently depleted which will NOT allow for a significant price decrease heading into new crop. There could very well be a large demand in that period for oil as olive oil buyers will not have enough stock to get to January arrivals. So we all have to understand two things:
a) Not only available oil in market for sale, but
b) The amount of demand in the market place at key times.
Mid to end October will be a KEY time frame.
2. The situation can really get worse if Spain does not get enough rain. It certainly has been a very hot summer in major growing areas with a lack of rain fall. Without rain fall, the decent estimated crop in Spain will be affected. If it does not rain, 2015/2016 crop will make this season look like a picnic.
• For U.S. buyers, the European Union eased import quotas on Tunisian oil. We will have to fight the Italian marketers for oil for Tunisian oil at a faster pace. The Quota was 56,000 tons and it is now increased to 86,000tons. It also had monthly maximums which had been:
• 1,000 tons for each of the months of January and February,
• 4,000 tons for the month of March,
• 8,000 tons for the month of April,
• 10,000 tons for each month of the period between May and October.
That monthly allotment was changed to:
• 9,000 tons per month for February and March 2015
• 8,000 tons from April to October.
We have not seen what the monthly allotments will be in 2016 crop year.
3. For a better scenario – RAIN occurs at the right time and right pace – it will bump up the quantity available in Spain. Please do not get too excited, this will probably only delay the short fall in the overall world crop, and make the price increases gentler moving into the second quarter.
Review last month’s PRODUCTION and CONSUMPTION CHARTS. And PRAY for RAIN.
WORLDWIDE FINANCIAL CRISIS
It looks like the Greek bailout will be finalized soon, the U.S. Federal Reserve is hinting at raising rates in the not too distant future, and the Chinese currency was devalued to try and jump start their economy. A very complicated and delicate economy environment indeed.
CALIFORNIA OLIVE OIL COMMISSION / AUSTRALIAN OLIVE OIL ASSOCIATION
There could possibly be a two year window for California Olive Oil to make a hard push to gain shelf space in the US supermarkets. It appears if they can gain entrance, they will have a considerable time for them to convince consumers that their product is superior and can maintain a higher shelf price over their rival imported brands.
COSTING BY PRODUCT – BUYING RECOMMENDATION
Market continues to be WHITE HOT. July consumption numbers in Spain were over 90,000 tons for exports/local consumption. Not much quantity being offered and when sold, price levels increase. This trend will continue for the foreseeable future.
EXTRA VIRGIN: Prices have exploded once again, after the report on consumption. If you are not covered, it’s best to bite the bullet and get some coverage until end October and HOPE for relief at that point. Just this week, offers from producers are up .25 cents per pound – $1.90 per gallon.
REFINED/PURE: Following same path as Extra Virgin. No signs of oil being offered in Turkey.
POMACE: Cost is pretty much the same as last month. Has not followed the trend, as in my opinion Pomace has reached its elasticity point in terms of pricing. Has not really moved in last 60 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
Euro has traded in small ranges in past days.
Last 30 days: AVERAGE = 1.0959 HIGH = 1.1148 LOW = 1.0828
Euro is trading HIGHER than the average for most of the past 30 days.