Name of the Game – Consumption
Crop is all but completed, the production looks to be less than was earlier projected. Not by a huge amount, however, this season every drop may count. Now we look to weather (rain) and a good blossom on the agricultural side. For the math side, OUTPUTS from Spain are by far the leading indicator of where price trends will follow. As a reminder – OUTPUTS = Local Consumption is between 40/50 thousand tons. Prices in Spain on retail shelf have risen dramatically, and recently have come down to try and gain some movement. A real question is whether olive oil sales in the supermarkets in Spain will continue at these levels. It may not matter as the other OUTPUT = Exports which historically run between 60/65 thousand tons, has been over that tonnage. We expect February also to be over that normal tonnage.
In March, you can expect the trend, of small quantities being offered for sale AND once sales have been completed, raising the price, until more sales are completed and repeat. Some buyers have gone out a little longer so we expect purchase activity to slow some; in March the WILD CARD is the what the Italian exporters will do and what inventory positions they have and what they will need moving forward.
This was indeed a difficult harvest in terms of planning purchases, we expect the GREY will continue for some additional time. Currently the price per kilo ex-factory is at a pivotal point. The real question, does the consuming public and manufacturer continue purchasing olive oil when the price gets to a certain level. A fall in the value of the dollar will make things worse. Also, all if not all retail sellers of olive oil have already planned their shelf prices and promotions. They may cut back on some promotional activities. All this will play out while we wait for the needed rain and a good blossom.
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Worldwide Financial Crisis
The chaos continues in our politics while the new administration tries to get their feet underneath them. The stock market seems to be reacting kindly to the new reality. The Federal Reserve raised interest rates, and signaled two more .25 point increases before the end of the year. So, although politically things are upside down here, the US is doing well, not great – well. In Europe, the political climate is pretty much a parallel to what we just went through. We know about BREXIT. Now comes France’s turn, with a strong nationalistic candidate. In Germany – Chancellor Mergel is in trouble with her immigration policies. Like here — Germany needs more laborers to keep up with their productivity AND service industry jobs. Germany has done a good job of educating the work force for the new era of job growth and per some experts, will NOT have enough workers to fill all requirements. The US is similar although it is in the service industry sector we will have major issues if the current immigration policy is not more clearly defined. STAY TUNED< if nothing else it will not be boring.
California Olive Oil Commission/Australian Olive Oil Association
California continues building production tonnage. They are doing a good job of increasing their distribution. Foreign investment is moving things along very nicely as their sales need to be supplemented with imported product. All good things in the spread of olive oil distribution.
On the Imported front, more incidents in Spain and Italy on questionable practices. In Spain – no company names have been published yet. It has been found that several companies were accused of sending deodorized oil to Italy. We need to be diligent against that oil coming here to the US. In Italy besides this cloud, a company was accused of using pomace oil and labeling it Extra Virgin. This is a high crime, the NAOOA is on the lookout for adulteration like this here in distribution. It is imperative that importers work hard with their buyers to ensure that the oil they are receiving is what the label states. The NAOOA must double their efforts to insure the market place is void of such product.
Costing by Product – Buying Recommendation
Still need coverage until the end of May, and probably June. As discussed above we are a price level in Spain, that if we cross at current EURO level, consumption will drop off. So, it is our thought that expanding coverage is NOT recommended unless the current price level is within your budgetary requirements. Adding to question of lengthening your position, is even IF you like price level, not many offers are allowing coverage past June arrival, unless an importer over stocks their inventory level.
REFINED / PURE:
Price and market conditions are following EV… Turkey has been a sporadic alternative.
Well the cost level has hit historic HIGHS. The pace of pomace imports will slow dramatically with the price levels being proposed for prompt shipment. This is rather discouraging as normally at the end of the crop; the raw material is more readily available and creates a more competitive market price. My GUESS for this very dramatic increase is: 1. Following the increased of EV and Refined. 2. As price of EV and refined goes up, pomace is still a much cheaper alternative. Not much to recommend here, if you absolutely need pomace – you should pay the astronomical prices.
***** 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.
Point of Interest This Month
Tax Reform – the Republicans in the House have proposed border adjustment tax (BAT). For importers this would mean an increase of 20% on any imported product. This tax is needed to offset the reduced corporate tax rates. It also plays into the Nationalistic theme this administration is pushing. STAY TUNED.
Currency Facts – Euro Update
Since last report
SPOT – 1.0583
OPEN on February 7th – 1.069
HIGH since last report – 1.07806
LOW since last report – 1.0521
AVERAGE since last report – 1.06194