Rubber Meets the Road
We may have gotten to where one has to make some hard decisions on their purchases for 2016. This has certainly caught me off guard. With the number of available sources of supply, we really did not think the major decisions would be made this early in the year. Even if you do not believe the market can sustain these new higher levels. One has to deal in the realities, that the Spanish exporters have gotten themselves pretty organized.
The public relations statement are echoed and mimicked from one supplier to the next. You ask about rain, the answer is not enough. Rain comes and the retort – not at the right time, and the weather is too hot anyway. The yield or amount of oil in the olives this year is higher than any other year in my memory. Most years the amount of oil in the olive runs 19/21 depending on variety, region, etc. This year is running in some places close to 26 or more in isolated cases.
Conversations are already pointing towards next year’s crop which carries the same negative issues with the weather – not enough rain – when it rains it does not at correct time – weather is unseasonable warm, and the tree needs to go dormant in order to sufficiently be rested for next crop. One has to be cautious with next crop. IF the scenario is good year – bad year. We do not necessarily believe that scenario. IF you do, however, next year will be the down year. It plays into their conversation that oil will be scarce come second half of this year, even running into a shortage of supply for next year.
My feeling is that the availability of oil is quite good. Concerns about new crop are a bit premature, however, the fear is legitimate. The issue is can producers and /or exporters store and finance the goods? Up until this point, the resolve seems to be there, AND there has been limited competition from Tunisia. Italy and Greece had good crops. My inside barometer is spinning. Although, now it seems like a Roulette wheel, any outcome could occur.
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WORLDWIDE FINANCIAL CRISIS
Wow, what a ride the Stock Market has taken since the last newsletter and certainly since the Fed raised interest rates. The price of oil has really been driven down by over-supply. Election mania is full swing with Iowa Caucus just around the corner.
European Economy keeps muddling along. The refugee crisis will become more of a factor in the growth and stability of the Community. Indicators are not great, however for most part at least they are not pointing downward.
CALIFORNIA OLIVE OIL COMMISSION / AUSTRALIAN OLIVE OIL ASSOCIATION
The California group continues with a barrage of negative and misleading half-truths. Have to give them credit, these claims are showing up in some important media outlets. As they try and crash the category while trying to increase their distribution. A little different approach than most would take.
What this points out, as an import community we have NOT done a good job of getting our message out. We have not done a good job in addressing Taste Panels / their need/use vs their inconsistency. In 2016 we hope to make our message clearer while expanding sales in the category.
COSTING BY PRODUCT – BUYING RECOMMENDATION
EXTRA VIRGIN: What a mess, market as described is moving faster than the actual harvest in Spain (which was very quick). We have come to a time to make purchases to have coverage. That coverage is up to your risk appetite. However, you need to bite the bullet and get some percent of coverage until at least end June, further if you can find a supplier that can sell you that far out without large add on costs.
Crop figures seem to be right where they were estimated. Simple math dictates that the oil available is the same as last year and prices in Euro’s will follow same trend as last year at some point. The counter argument is demand has faded and as prices rise, the demand will slow. How much? What price is the elastic point where sales stop? Not a simple concept to calculate. One has to channel Dirty Harry! “Do you feel lucky today?” Well do you? The downside is pennies, the upward side is nickels and dimes, maybe quarters.
REFINED / PURE: This is a real strange development. Lack of lampante, the refining of virgin olive oil to produce refined. Has caused refined prices to follow much closer to extra virgin than in the past numerous years. This trend has been going on for quite some time. Logically it should not continue, as lampante inventories should be building up. The EV price tendency is making a reduction on refined very hard to find. We would be more cautious on refined purchases. There is more room for declines in this category. You should however have some coverage until end June.
POMACE: Uncharacteristically, there still remains a large price discrepancy with the other categories. A reduced cost of raw material before the end of the year. It is just now starting to close the price gap to extra virgin and refined. One has to be careful with as raw material usually builds up as the crop comes to an end. Keep an eye, and as is good practice make sure you have coverage out 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
AVERAGE 1.0867 HIGH 1.0925 LOW 1.075
Dollar has been weakening as the Dow and Oil prices have dropped considerably. Today (1/28) it is trading higher than the high from the last 30 days.