Since last newsletter, the market continues to soften. The much-needed rain fall was enough to bring some clarity to the upcoming blossom. There are several reasons for the continued softness:
1. Probably the most significant point to be made on this market really has to do with trading and not necessarily specifically olive oil. Having traded olive oil for over 27 years, it is my experience that whenever the market runs up in pricing as much as the market has in the past 15 months, the fall (from baseline start) is farther than one can usually anticipate. It is not always the case, yet it seems to occur much more than any other result.
2. The Rain came at a very good time, maybe not enough total water supply, however enough in people’s opinion to avoid a disaster for next year’s crop and this year’s blossom.
3. Bottlers in Spain OWN high inventory levels – based on January/February prices. This is not a very comfortable position and it takes a KEY outlet away from trade that will not be buying in the very near future.
4. In Spain, the local consumption remains sluggish due to the high retail prices.
5. In US, the consumption numbers are lower than previous years, so exports to the US are probably lagging from average totals of historic exporting countries for sure, from Spain is significantly down.
6. A critical mistake was holding for the higher prices in January and February, and not releasing enough oil into export markets at lower levels. Basically, enabling Tunisia and Turkey to slowly and meticulously lower costs month by month, at good unit volume levels. Tunisia and Turkey still have quantities available and this will make Spain’s exports a struggle. Not like last year, where Spain was the only alternative at this time frame last year.
7. We have discussed OUTPUTS from Spain as a major factor in the psychology of the market prices. In 2018, the total OUTPUTS have been averaging less than 100k tons, and the April numbers coming out tomorrow will most likely follow suit. If you look at 2017, the OUTPUTS were averaging 125 k tons per month.
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WORLD FINANCIAL NEWS
European economies seem to be chugging along with no major negative conditions. Of course, there are underlying long term issues that need to be addressed, it seems the worst is behind them, at least for the foreseeable future.
In US, no major legislation seems to be on the horizon, even the Farm Bill is being kicked down the road. One would have to say, that US Isolation Policies are major International News. Tariffs, withdrawing from TPP – from the Iran deal, and the friction on the NAFTA negotiations dominate the news coming from the US. Globalism is not on this administration’s agenda. How it will ultimately effect olive oil is anyone’s guess.
NORTH AMERICAN OLIVE OIL ASSOCIATION / CALIFORNIA OLIVE OIL PARTNERS
The North American Olive Oil Association is pleased to announce details on our annual Olive Oil Conference July 10 – July 12 in Rosemont, Chicago, Illinois. Here are the program details.
COSTING BY PRODUCT – BUYING RECOMMENDATION
We wanted to put a caveat to these recommendations. Many factors are very individualized to a company’s long and short terms goals / sales / projections / budgets. These recommendations are our best educated guess on where we see the market over the time frame discussed here.
Last newsletter we recommended being covered till end of June. Conservatively, it makes sense now to cover though end of August. Not because raw material is not possibly going to soften – for the combination in raw material costs and EURO = makes the landed cost very attractive. One can make the case to cover needs till the end of the year at current market levels, mainly based on the weakness of the EURO.
REFINED / PURE:
Refined is following the same trend, however available raw material on refined is more readily available and there is not a pressing need to lock up a quality (as on an EV profile). Euro needs to be a big consideration on how far you cover your needs. For raw material there is no rush.
Finally weakening as demand slows and raw material increases. No rush here to cover… 60 days out is good position to be in.
***** 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
A breakthrough an important level of 1.20. It’s anyone’s guess based on our trade policies and interest rates on where the Euro will go.
30 Days 60 Days 90 Days 190 Days
AVERAGE 1.217 1.224 1.227 1.213
HIGH 1.237 1.242 1.247 1.248
LOW 1.185 1.185 1.185 1.165