Be Prepared

Last weekend's print edition of provincial newspaper Diario Jaén carried a two page feature on the very large olive oil stocks still remaining unsold in Spain's, mainly co-operative, mills as a new and abundant harvest approaches. Based, unfortunately, on data from the Agencia del Aceite de Oliva which is published with a five week delay, and not reflecting fairly strong volumes moving throughout August, the report made special mention of the extremely depressed market for extra virgin grade. This situation remains in effect as last month's trade was almost exclusively concentrated in virgin olive oil. Prices, flat at low levels throughout the summer, are now reflecting concern over this situation. Virgin, according to today's PoolRed reports, is crossing at 2.29€/kg and lampante at 2.22. EVOO remains firm (if you can call it that with total volume for the prior week at a mere 604 metric tons) at 2.33 - a price that is going to create a great deal of disappointment when the co-ops hand out the year's profits next month.

Even more indicative of the inventory problem are futures prices. November delivery opened this morning at 2.19 bid/2.23 ask. It is hard to imagine a new crop short squeeze this year come settlement.

On another front, those exporters to the United States that might have seen a ray of hope when the euro dropped rapidly into the 1.30's should note that today's 1.4480 reflects the very limited range of options available to that country to solve the current financial crisis. And crisis it is! The problem created by limited bank solvency and worthless collateral backing excessive levels of indebtedness in an economic environment in which the U.S. is already over its head in debt to foreign nations (China foremost among them) is, out of necessity, only fixable through the willing or unwilling cooperation of creditor nations. The unwilling takes two forms, which both turn out the same in the end - the sudden suspension of interest payments on the part of Washington or the slow motion version of the same through the devalution of the dollar. The latter is, by far, the most likely and is, in fact, already taking place as bucks are being printed to keep financial firms afloat. Encouraging to some degree was that Chinese, and other foreign, banking officials were present at the talks that ended up nationalizing insurer AIG at the beginning of the week. Also interesting has been the cooperation of G7 nations in the provision of 250 billion dollars of short term financing to institutions that find the interbank market non-functional.

The combination of a rapidly sinking dollar with the near certainty of a prolonged economic recession in the wake of the disappearance of so much money in what might rapidly turn into an inflationary environment (note that crude oil is up about 10 dollars) is likely to take its toll on olive oil sales in general, and exports to the U.S. in particular. It is difficult to imagine a premium priced product like olive oil remaining high on the consumer shopping list under the circumstances.

Anyone who thinks that events of this nature do not affect them as they go around preparing for the harvest had better think again.