Saturday, September 1, 2007

How To Interpet PoolRed Prices

The data source used by The Olive Oil Gazette to provide the current cash price for the different grades of olive oil is PoolRed, a quasi-governmental data collection and disemmination agency. But, as one olive oil broker* commented to us in a requested opinion about the Gazette, "The only thing that I don't agree is the Poolred prices, because as you know, they are not real...", from which he proceeds to say, "they are just good to analyse tendencies but not more... and sometimes confuse buyers".

Seeing as we are in complete agreement with his assessment, we think it appropriate to tell our readers how they are derived so that these figures can be taken for what they are - which is definitely not a negotiable price for olive oil at any point in time.

Among the things to take into account are the following:

1). The reporting of sales to PoolRed is done entirely on a voluntary basis. Current estimates deduce that about 60% of Spanish production is reflected in these prices.

2). The absolute largest Spanish olive oil producer (and sell side market maker on the MFAO), Hojiblanca, does not report - and they have the most influence in the setting of prices in this market.

3). The reporting of olive oil grades sold is entirely at the discretion of the producer. If the seller says it was extra virgin, that is how it is recorded.

4). Lampante olive oil is quoted for a one percent acidity product, an extremely low figure for this grade. Any price adjustments for increased levels of this component are done at the discretion of the producer. If this is not done, as is usually the case, the quoted price can, and does, distort this representation of the current market.

5). The real world price for extra virgin olive oil depends, to a great extent, on the olive varietal from which it is produced. Hence, in periods of low sales volume, it is common to see large swings in its price on PoolRed, as alternating large sales of lower-priced picual and expensive arbequina skew the data, for example.

6). All PoolRed prices are calculated as a five-day, volume-weighted average of reported sales. In times of rapid price movement, they will lag the real market by a considerable margin.

The obvious question would be, "What is their use?":

1). In the long term as the differences even out, this data gives a very good feel for tops and bottoms in the market price for olive oil, especially as prices for different grades converge and diverge, and they can be used as such for deciding on the timing of buying and selling decisions.

2). The volume transacted figures give a good idea of the urgency of apparent price changes.

A Warning To Potential Buyers

The confusion about which our correspondent remarked stems from inexperienced buyers attempting to negociate a deal using PoolRed prices as a basis. One can imagine the reaction of a novice on not being able to receive a quote within five cents of this figure. We repeat, Due to the limitations of PoolRed's data collection methodology, their cash quotes do not necessarily represent a negotiable price in the real market.

In the meantime, and for lack of a better alternative, The Olive Oil Gazette will continue to post them in the sidebar and reference them in articles. But we are on the lookout for a better alternative and any suggestions would be appreciated.

*Many thanks to YC for having contacted us about this matter. We apologize for the delay in dealing with it - but you can't get anything done in August, even if it's yourself that has to do it.


Anonymous said...

Dear Charles,
I keep thinking the same... they are just good to analyse tendencies..

One more thing... Im not a Broker. Im the Purchase Manager of the company in Spain and other countries in Europe and South America.

I also talk to Brokers but Im not one of them. Sometimes, we both do the same job but I just work for 1 COMPANY and thats it.

I can understand your confusion because Im always dealing with Bulk Olive Oils and Market...

Regarding to POOLRED, I think they are very proffesional and for sure, usefull for many... Its just a different way of making Business.
You are American and You know in Canada or the U.S , often , business work out in a very different way.
I check POOLRED every single day...I think , each person gets one thing different from the rest and each one makes his own conclusions...
But for sure... When dealing in Bulk,,, the word poolred, never comes out as something to consider on setting prices.

Yago Cruz
Gourmet Factory / New York

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