More of the Same

By janey on

Trying to pick up where we left off our conversation of last month. The Spanish production was completed in the middle of March for the most part. There was some minor production of 35,000 tons, for a total Spanish production of less than 1.3 Million tons – short of expectations. This in a year when every ton will count and be needed.
We were in Spain for a conference in Madrid after driving through Spain to look at the conditions of the trees after the harvest. We are pleased to report that wherever we drove the trees looked in much better shape than they were last year in April. In different parts of Spain, the amount of rain needed varied. For the most part, the consensus was that more water would be needed for optimum conditions. Of course, this rain needs to come at two different times before the heat of the summer AND after the oppressive heat of the summer in September/October.
So, where are we now? OUTPUTS in Spain were large in March – going out were 135 k tons, of which approximately 40 k tons was local consumption, some minor imports into Spain occurred. As we have written about before, OUTPUTS over 110 K (normal) will definitely impact the carry over heading into the 2017/2018 campaign. The KEYS to this side of the equation 1. How much will the Italian exporters need to get to new crop. It is my view they are not totally covered. 2. How much will the US market need to get to new crop. Here again under normal consumption, US buyers are probably short heading into fourth quarter of 2017. 3. Lastly, what will local consumption in Spain be for the balance of the year. Note however, that normal movement is only 40 k tons per month, that will not move the needle much AND prices are dug in at the supermarket level, they will not go up for the rest of the year.
In summing up, next year is a long way away. Major decisions have to be made shortly for your fourth quarter requirements. Playing chicken and not covering is dangerous. If the carry over heading into new crop will be short and put a premium of oil from September forward purchases. No matter what the new crop will look like. A bad blossom in Spain will make things very dangerous. As it will be too late to make coverage at current levels. We will be returning to Spain in May to get a up close and personal look at the blossom. Stay Tuned.


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US politics remain somewhat uncertain. As a result, the stock market is unpredictable. The Federal Reserve indicated that the economy is getting close to the goals set by the Fed. In Europe, some elections will take place, most notably in France. It’s an important one to keep an eye on. While in Spain, the electorate are certainly not ecstatic at their new reality. Yet, the new conditions are becoming the new normal. Spain has some employment and economic growth issues – however – Europe seems to be stabilized and stopped the hemorrhaging.


Average Production vs Average Consumption
Source: IOC forecast reports November 2016
Country 2014/15 2015/16 2016/17 5-Year Average (MT) Consumption Average Differential PLUS/Minus
Spain 842,200 1,402,000 1,311,000 1,190,980 505,000 685,980
Italy 222,000 474,600 243,000 363,760 562,000 (198,240)
Greece 300,000 320,000 260,000 273,980 140,000 133,980
Tunisia 340,000 140,000 100,000 174,000 35,000 139,000
Syria 105,000 110,000 110,000 136,000 105,000 31,000
Turkey 160,000 143,000 177,000 162,000 130,000 32,000
Morocco 120,000 130,000 110,000 118,000 100,000 18,000
Portugal 61,000 109,100 93,600 82,900 70,000 12,900
Algeria 69,500 84,000 74,000 67,500 84,000 (16,500)
Egypt 17,000 25,000 27,000 21,100 21,100 0
USA 5,000 5,000 5,000 6,200 306,000 (299,800)
OTHERS 5,000 5,000 5,000 117,080 516,000 (398,920)
World 2,458,000 3,159,500 2,713,500 2,713,500 2,574,100 139,400

So, as you look at the above – here were the critical miscalculations I made.

1. Not putting enough value in the very low production in Italy.
2. Not putting enough value in the very low production in Greece.
3. Underestimating the effect the delay in the crop had on any possible softening of the market in December and January.
4. Not having a good handle on how empty the world-wide buyers were heading into Mid October – when the early harvest started
5. For some facts and figures – Italy just for their own local consumption was short 320k tons.
6. Never mind the short fall in Italy’s requirement for exports (another 250 k at least)
7. Fully understanding that Spain will be the sole consistent source for the rest of year, when it was pretty apparent in December.


EXTRA VIRGIN: If you are not covered till end of third quarter at this point, one must seriously look at that coverage in earnest. Not sure how much oil can be covered (bought) for the fourth quarter = if your supplier can cover a portion of your needs that would probably be wise to do so. If the blossom turns out not to what was expected or rains do not come. One will be on the outside looking in for your fall needs.

REFINED / PURE: Category continues to follow the trend in Extra Virgin. Turkey remains a small factor and slowly shipping out some quantities.

POMACE: Inexplicably raw material costs continue to remain firm, based on tight availability of crude and the market trend on the other olive oil categories. Our best advice is to cover 60 days out, and HOPE/ PRAY, that the market comes to its senses. In my experience, any market that goes up so drastically over a decent time frame, FALLS dramatically when the market adjusts. Predicting the timing of that fall is crucial to not getting caught with higher unshipped positions.

***** 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.


Tax Reform – Health Care continues to ping pong around Washington. The critical point for Importers and olive oil is how the conversation goes on the Border Adjustment – in the Tax Reform Bill.


Since last report

SPOT – 1.0673

OPEN on March 9th – 1.0637

HIGH since last report – 1.078

LOW since last report – 1.063

AVERAGE since last report – 1.071