Delay – Delay – Delay – then Chaos
The delay in the crop in Spain – Tunisia – Turkey has led to demand outpacing supply by significant margins. Price declines that were hoped for, never materialized. Prices increased as the reality of a very poor crop in Italy and Greece, and a subpar crop in Tunisia all lead to a very bull market. When you add in the poor yield so far in the Spanish harvest, this spelled a disastrous result for us who thought when Spain’s crop was in full production that a dip would occur. NOT only didn’t a decrease occur, a runaway price market developed.
What happens now, is a KEY question, and one that is extremely difficult to answer. The Italian exporters of finished product have nowhere else to turn other than Spain until South America starts shipment sometime this summer. Turkey’s available export quantities will not be enough to change the momentum of buying in Spain – therefore creating a one stop shopping place. Spain will be the only place for oil for pretty much the rest of the year.
What can occur that would favor BUYER? A. Some rain between now and at the end of the harvest before the trees go dormant., B. Consumption will most certainly in Spain normal decline from the 45/50 thousand tons consumed. However, the exports will most likely NOT go down below traditional levels (60/65 thousand tons) Last year this ranged closer to 70 thousand tons and so far from new harvest, exports have exceeded even 70 thousand tons., C. Price will get to levels that buyers will look to alternatives away from olive oil or simply start using less olive oil than before., D. The US dollar will become super strong – mortgaging the full effect of the cost of the oil in EURO’s.
What can go wrong? 1. No rain, 2. Poor Blossom, 3. Demand remaining at current levels.
Until the crop is finished? – we expect a pretty chaotic market. Buyers will have to make decisions that will affect the market in ways we may not be able to anticipate.
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Worldwide Financial Crisis
Well the worldwide crisis seems to be occurring at least politically right here as the NEW era of government takes shape and starts keeping the campaign promises that were made. One in particular that Majority Leader – Paul Ryan is pushing is the Tax Reform, which will include lower corporate tax rates – however also they include the exemption of listing imported good as a cost of goods or product purchases. Effectively taxing the imported goods at whatever tax rate your company rate was, or for LLC/S Corp whatever your individual tax rate is. As written this will either force imported products prices up substantially or worse case put importers out of business. This of course, is in the early stages of development. This tax reform has been formulated in many circles and has made its way to the desk of the Chairmen of the House and Ways committee. Paul Ryan has endorsed this starting point to Tax Reform, with politicians focusing on the tax rate deduction NOT the details on how it will be paid for. In normal years, this probably would be less of a concern to the importer community, however, with the rhetoric and the surprises of before and after the election. No one can really be secure that basic ideas that seem doomed actually make to a vote and get passes/elected.
In Europe – Brexit takes shape with Great Britain getting used to their new reality. France has an upcoming election with the Populist candidate doing very well in the polls leading up to the elections.
California Olive Oil Commission / Australian Olive Oil Association
Well the second lawsuit was filed against those who were making false claims on the health benefit of olive oil. Mimicking similar false statements against imported olive oil without a factual basis lead to a hard decision to pursue legal matters. We hope this is our last action – unfortunately we cannot say that definitively. Legal proceedings are time consuming and costly.
Onto more productive conversation, we are hopeful to find a common cause we can share with the domestic industry and Boundary Bend. Finding ways to promote all olive oil and olive oil research – working even harder to prevent purity issues in the food service sector. Getting a positive message out to the consumer will raise all members of the olive oil marketing community. Not sure what next crop will bring from Europe. However, the average world crop and average world consumption is pretty close if not favoring worldwide consumption. If we focus on increasing market share against vegetable oils, even with increased productions we can keep consumption running ahead of production. It is a worthy GOAL for everyone involved.
Costing by Product – Buying Recommendation
Well we missed this recommendation by a football field maybe longer. One has to try to get covered until the end of May / June. The conversation may lend itself to even longer. Currently we see no real way for the price on Extra Virgin to come down in short course. Looking longer, it does not seem to have enough indicators to lead us to believe better costs (other than a stronger dollar). So longer coverage till June/July is warranted.
REFINED / PURE:
Same as Extra Virgin
Here is the outlier to the market. Pomace has jumped dramatically over the past 10 days. An outrageous increase. Some of the increase is due to dwindling stocks of crude pomace oil available. What is available in terms of crude is in the hands of a few traders! They are controlling the raw material into refineries. Also, the run up of extra virgin and refined – makes the pomace producers want to get in on the higher market prices and not have such a large variance between the categories. Short term – one needs to have coverage until end of March, maybe into April. Right now, it is hard to tell what will occur after the crop is fully harvested. History says raw material prices will come down. Unfortunately I have been wrong since October so not going to make a firm recommendation at this time on other coverage periods.
***** 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
Since last report
OPEN on December 15th: 1.0467
HIGH since last report: 1.0748
LOW since last report: 1.0389
AVERAGE since last report: 1.05562