Noting that person or persons using an English Unilever server have been spending serious quality time scouring back issues of the Gazette, we were reminded that we had promised an update on the rumoured interest of SOS-Cuétara and Ebro-Puleva in a theoretically for sale Bertolli.
Well, nothing's changed. A Google search for either 'SOS Bertolli' or 'Ebro Bertolli' still turns up first on the list, three weeks later, our little, doubting piece on a rumoured sale of Bertolli to a consortium of SOS-Cuétara and Ebro-Puleva - and there is still apparently no independent confirmation of this sourceless rumour, originally relayed to the public in the March 8th edition of Expansión, in any other publication that we know of.
Of course, with Unilever in the midst of a massive corporate reorganization and refocussing of the company on developing markets and with much talk of a search that might be taking place for a replacement for current CEO, Patrick Cescau, it is quite possible that Bertolli might be up for grabs. On the other hand however, one might take note that various Spanish savings banks are significant shareholders of both SOS and Ebro. Given that the collapse of the Spanish property market is on the verge of causing grave balance sheet problems for the cajas, as they're known, any bit of news that might support the stock price of these two listed companies would be much appreciated. As we already know, at least one these companies is not adverse to misrepresentation in the interests of economic benefits.
A news item which appeared last week on a wide variety of sources, including EurActiv, announces that recipient nations of EU farm subsidies must make public the names and amounts received of all individual claimants. Websites providing this information must be up and running by April 30, 2009. At the very least, the results will be interesting and will provide much fodder for parties, such as this writer/grower, who rail against the absolutely unfair manner in which the CAP is calculated.
Page 2 of yesterday's print edition of provincial daily, Diario Jaén, announces that 300,000 euros of agricultural subsidies destined for the promotion of PDO olive oil from this province, alongside 200,000 more contributed by other levels of government, will be spent on contracting Bob Dylan to make a stop in the provincial capitol during his upcoming Spanish tour. Presumably, affiliating the product of our province's monoculture with an entertainer of this prominence will go a long way towards notably increasing its consumption.
One has to wonder, though, why anyone would want to spend half a million euros on a promotion that will be hard pressed to have any effects beyond Jaén's boundaries - this not to mention that it will have none within. Olive oil is absolutely ubiquitous here. The only possible initiative that would increase its use in the province would be to have it pouring from household water taps. And if the promotors of this idea believe that the concert will receive national (let alone international, where it is really needed) exposure, they should keep in mind that Mr. Dylan will be appearing during a multi-city Spanish tour sponsored by Zaragoza's Expo 2008. They will be lucky to get 10 seconds of air time on any medium that is not Andalucia's Canal Sur. After all, it will certainly not be equivalent to a hypothetical U2 farewell concert in the midst of the olive groves in terms of public interest. In turn for this largesse, the city government of Jaén promises to promote the province's olive oil in whatever manner it may. Singled out for meritorious mention in the article was the city's commitment to include olive oil in its institutional gift baskets for the next two years. What a deal!
Ignoring our gut feeling that there is some sort of political and economic sleight-of-hand taking place here (the hypothetical details of which we are categorically not free to share with our readers, however well-reasoned they might be), we wish to propose a more effective use for what is approximately 770,000 US dollars, suggested by a colleague familiar with these matters. That amount of money would currently pay the rent and staff at a 70 square metre store, devoted to the sale of Jaén PDO olive oil, within spitting distance of 5th Avenue in midtown Manhattan for upwards of three years. And this without accounting for the sale of a single bottle of Sierra de Cazorla extra virgin on the premises.
Hello? Is anybody listening?
To help us resume posting, with Holy Week now over for another year, today's online edition of El Ideal provides us with a feature on the current Spanish drought and its potential effects on the olive oil business. The core of their argument is that we may be seeing a repeat of the 2005-06 crop failure. None of this will be news to regular Gazette readers so we will, instead of repeating it all, indulge in one of our favourite activities - exposing the stupidly shameless manner in which the press manipulates facts to make the worst of a bad situation.
In the current example, the writer notes that the 198 litres of rain per square metre that have fallen on the provincial capital of Jaén to date are less than the long term average of 304. Curiously, however, he comes to the conclusion that this figure represents a decline of some 58% with respect to that figure. Now, neither the reader nor this writer need pull out a calculator to verify that 198 is not 58 percent less than 304, but it may be helpful to note that it is 42 percent of 608 - the double of this average. What the writer really meant to say (and expected the reader to make a whole series of calculations to understand it) is that, if it fails to rain at all over spring, we will see a shortfall of 58% relative to an average year. Well, that's a bit different, isn't it?
The journalist then goes on to predict a repeat of the increase in olive oil prices experienced two years ago. Be that as it may, he finishes his argument by stating that the 13 cent spread between nearby and March 2009 lampante futures was already confirming his position. No mention is made that if the cost of carry is counted in, March 09 is actually cheaper than March 08. The foregoing also fails to mention that the May 09 contract crossed for the first time today at 2.60€. An absolute steal, if the reader buys the argument. But maybe the fact that some seller is willing to absorb more than the carry for 14 months is telling us something else about the prospects for the 2008-09 olive oil market - and that might, inadvertantly, be the most important piece of news in today's Ideal.
Monday was delivery day for the March lampante contract on the MFAO. The open interest at close was 2250 contracts but, according, to the exchange's daily e-mail, only 250 were held for delivery through their facilities. Apparently their efforts to have hedgers seek other means, mentioned on a number of occasions in this publication, has paid off. The closing price on the contract was 2.54€/kg, about 3 cents above cash.
Prices paid, expecially for the lowest grade of olive oil, continue to be marked by a notable lack of volatility. Since the beginning of the year, EVOO has traded within an 8 cent range, virgin 12 cents and lampante a mere 5 cents for going on three months. What is worth remarking on is the seeming lack of strength in the far dated deliveries on the futures market. November and January have both most recently crossed at 2.63, a mere 5 cents over July. Considering that it continues to not rain in Andalucía - the 210 litres per square metre registered around here being only slightly above that of the 2005 drought year at the same time - one would expect a bit more fear going into 2009. But the bids for 150 November contracts put in at 2.71, 2 cents below offer, were all scooped up instantly. This rapidity gives every indication that it was the market maker acting. If that's the case, we now know their opinion of the prospects for olive oil a few months out, this confirmed by the current 2.60/2.64 on the board as of today's close.
On the topic of rainfall, a local news station recently showed images of people walking across bared stones in the Guadalquivir River in the city of Córdoba. Judging by the waterlines, the river seems to be down about a metre. The Confederación Hidrográfica has banned the filling of irrigation reservoirs or the use of water not previously stored for watering crops out of concern for drinking water supplies in the watershed. The reaction in this area was instantaneous. Any seals placed on access points by the authorities were immediately broken. Mountain people do not take outside interference lightly.
A secret admirer, we suppose, has edited the English-language Wikipedia entry for our home town of Cazorla by placing a link to the Gazette in the sentence: 'There is even a publication, The Olive Oil Gazette, which is published in Cazorla.' We have no idea who did this, but we certainly appreciate the attention garnered.
Thanks!
As the price chart on the left illustrates (for those who didn't already know this), the price of copper is at pretty high levels compared to, say 2004. It is six times as expensive, in fact. And, of course, inflation of this type brings out all sorts of reprehensible behaviour. A good example is the plague of thefts of bulk olive oil following the 2005-06 harvest when prices got up around 4€ per kilo.
The most recent edition of the monthly magazine put out by farmers' union, Asaja Jaén, has published a warning to farmers buying copper compounds to treat for the fungal infection, olive leaf spot. Apparently, some of the products on sale currently in Spain are expressing their contents in '% copper oxychloride' rather than '% copper'. The former contains approximately one-half the actual metal as the plain copper. The defense against this trick is to weigh the container. According to the article, a 5 litre jug of the true article should weigh upwards of 9 kilos, and the misrepresented product approximately seven.
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A friend of The Olive Oil Gazette has redirected his currently unused website, bulkoliveoil.com, to this blog. As much as we appreciate the gesture, readers who have entered there and found themselves here should know that this was done as personal favour and that the two sites are not affiliated.
We couldn't help but note the 30 or 40 percent upsurge in traffic at The Olive Oil Gazette over the last two days - or, since publishing the previous piece on some proposed takeover of Bertolli by Spanish interests. We can chalk this up to the rapidity with which Google picked up the entry. A search for word combinations like 'SOS Bertolli' or 'Ebro Bertolli' churns out a list with this publication at its head, even before the associated news items. Included in the new readers drawn, and apart from several from the world of investment banking, was a hit from Unilever itself. Unfortunately, he or she did not deign to leave a comment.
As of today, now three days since the publication of the original article in the Spanish daily, Expansión, we still see no signs of it being confirmed by any other source, except to the extent that Thomson Financial seems to be including it in its Spanish stock market press reports, but only as a direct reference to the original article.
We are going to give the principals here a week to show us the goods before we dive in with a more detailed take on the issue. Stay tuned... and thanks for your attention.
In an article dated Saturday, March 8, Spanish financial daily, Expansión, makes the claim that Italian food giant, Bertolli, is coming up for sale. Owned by the Anglo-Dutch multinational, Unilever, it is the dominant brand name for olive oil in the United States market. In the light of an organizational structuring to reflect Unilever's growing dependence on developing markets and the occasionally appearing rumours concerning the sale of the firm, this comes as no surprise. But what catches the eye is that this story of material interest to the company's shareholders seems not to have been reported anywhere but in that periodical to date. The amount of detail which it provides - including naming the bank that will advise on the deal - seems, however, to place it above the usual corporate gossip category.
The news item was centred, having taken the sale as fact, on the interest Spanish food processors and marketers, SOS-Cuétara and Ebro, might have in acquiring the company, and implied the possibility of a joint bid to compete with hypothetical offers from private equity funds or even Cargill. A successful bid would later see Bertolli's olive oil business going to SOS and its other Italian foods divisions in the hands of Ebro.
Aside from the curious lack of confirmation of this story, it seems to this writer that the current chaotic credit environment, which is making takeover capital very hard to come by at a reasonable price, and the pricing down of corporate assets in the face of capital market turmoil and an economic recession make this report slightly less than completely believable - both from the perspectives of buyers and sellers. On the other hand, were it true there would be no doubt as to SOS' interest in the matter. Already the owner of the Italian brand, Carapelli, as well as its own labels which are dominant on the shelves of Spanish chain stores, SOS-Cuétara would overnight become the worldwide olive oil reference.
One of the constant debates within the Spanish olive oil industry in recent years has centred on the creation of what is known as the Interprofesional del Aceite de Oliva, an association of all parties in the production and marketing of this product. Stalled for the longest time by infighting amongst the main participants - farmers, co-operatives and bottlers/marketers - a news item in the February 10th internet edition of Cinco Días noted that an agreement had been signed to finally get the organization, to be dedicated primarily to the promotion of Spanish olive oil, off the ground. Apparently, however, two farmers' unions, COAG and UPA, had refused to participate primarily on the grounds that they thought their level of influence did not reflect their actual role in the business.
UPA seems to have come on board, if this article is any indication. Published on February 28th in AgroInformación, the union now declares itself satisfied with the signing of the agreement. As for COAG, no mention is made of the issue in its website but, last we heard, they had attempted to block the process through the courts. The issue seems to be that they believe that the co-operatives should be relegated to the marketing sector of the association, and not the producers' side. Taken at face value, this appears to a very curious stance, given that growers (who constitute COAG's membership) are the de facto owners of the co-ops. But perhaps they have the same questions concerning dominant player Hojiblanca's joint marketing venture with Cargill as do we at the Gazette.
To continue with yesterday's theme, we have taken a look at the relative values of the currencies of various olive oil exporting nations versus the U.S. dollar over the last several months, to see which countries have come out with a comparative advantage in that market. The table on the right shows the change in local currency values against the buck since the beginning of July 2007. The big winner has clearly been Argentina whose peso has appreciated only about 2% in that period. The next task will be to see if the relationship holds through the southern hemisphere harvest. In the northern hemisphere, Turkey finds itself this winter with a considerable pricing advantage over euro zone producers. Whether the industry has been able to take advantage of this, given its proclivity for infighting, we don't know. Perhaps someone would clarify this with an e-mail.
By the way, for those who have not noticed it before, the second panel of the cash prices graph in the right hand sidebar calculates Spanish spot in U.S. dollars.
A couple of weeks ago, with the euro trading at around $1.47, we started to write a piece on the expectations for this exchange rate. The project was abandonned, however, because we could find no consensus on the matter, opinion being divided equally between those who thought that a U.S. recession would bring the euro down and others who opined that the American reaction to the credit crisis that is causing the slowdown would result in more weakness for the buck. Obviously, with the common currency now crossing at over 1.52 following last week's 4-cent surge, that debate seems to have been settled for the time being - pending, as always, new information.
So, without going into the lurid details of current account deficits, negative savings rates, falling asset prices, credit markets that have ceased to function, on the verge of being out of control commodity price inflation, looming recessions and American government policy that falls firmly on the side of inflating the country's way out of the crisis, we will ask the reader to take note of the fact that federal fund futures contract now considers it a near certainty that the Federal Reserve will cut 75 basis points off the overnight lending rate in its next meeting, locating it at 2.25%. This is a level at which the dollar becomes interesting as a funding currency for what is known as the carry trade - the borrowing of money in low interest rate currencies to invest in those offering higher returns. Turkish readers will certainly be familiar with the practice, the lira having been one of the principal recipients of borrowed and converted Japanese yen and Swiss francs for a number of years now. In practice, however, the trade is made directly through currency markets - through the short selling of the funding currency and the long buying of the target.
As in the olive oil business a surfeit of sellers means lower prices, so one might not be foolish to imagine further downside in USD/EUR. The buck is so sick that even trades recently considered to be guaranteed easy money - such as short the British pound - have turned violently against their holders.
*The reader should keep in mind that the above is the opinion of this writer and is no substitute for professional advice. Do your own homework! If, however, you decide that action should be taken, a brief look at a previous entry, entitled Managing Currency Risk, (and permanently accessible from the left hand sidebar) might be in order.
Noting that person or persons using an English Unilever server have been spending serious quality time scouring back issues of the Gazette, we were reminded that we had promised an update on the rumoured interest of SOS-Cuétara and Ebro-Puleva in a theoretically for sale Bertolli.
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