As we remarked to a friend recently, in light of the recent interest in virgin grade olive oil on the spot market, price moves for that category often predict similar in both lampante and extra virgin, particularly if they were accompanied by heavy volume. Today, both are up 6 eurocents as reported by PoolRed, with virgin flat following the recent surge. The reason behind this would be that there is one very dominant and trend setting player in that market. If other participants, rightly or wrongly, think that they are active, prices across the board will soon follow.
Readers should keep in mind that tomorrow is the 1st of May, a holiday throughout Europe, and markets will be closed.
Perhaps because this writer has spent too many years trying to distinguish between the rare, important news event, at least as it affects markets, from the daily drone of irrelevance that shows up in newspapers and periodicals, but he may have missed an item of some importance on Friday - a contaminated sunflower oil scare which may have pushed olive oil prices that were already rising up further. As the bizarre incident unfolded, however, it became apparent that we were not exactly mistaken in our assessment.
On Friday morning, news reports surfaced that the Spanish Ministry of Health was ordering all sunflower oil off store shelves because of a contaminated shipment originating in Ukrania (although the case was that Sanidad had only recommended that people not consume any of this product until the affected labels were known and made public). Although similar shipments had been detected in France, Italy, Great Britain and Holland, no immediate action was forthcoming from the European Union. Saturday evening television news then showed store shelves still stocked with the product. By Monday morning, health minister Bernat Soria was announcing that the recommendation was in the process of being lifted. Three days was what it lasted.
Today, May 08 lampante traded, on minimum volume, at 2.26€/kg, 4 cents below PoolRed cash and a full 12 cents (for those who might think that there is no concern over future supplies) below the other active contract today - September 08. Interesting also are the more than 8,000 tons of virgin grade that have crossed at an average of 2.40/kg in the cash market - up nearly 8 cents from last Friday on impressively large volume for the time of year. One can think of few bottlers specializing in that grade with enough buying power, and knowledge of the market, to force the price up to within 2 cents of EVOO.
One of the possibilities is that the EU may take some action against Ukranian sunflower oil - such as prohibiting its importation.
Those following olive oil futures prices will have noted a certain nervousness of late on the MFAO. After trading at a season low of 2.24€/kg on April 17th - following a collapse from the 2.60's, the nearby (May 08) lampante contract rebounded to close, eight days later, at 2.38 on unusually high volume across all current crop deliveries. We believe that, despite the bout of panic selling on the part of what we think were smaller players in the co-op sector, serious concerns over production shortfalls in 2008-09 continue to set the tone for olive oil prices. And with the cash market, at least until now, absolutely stalled, the MFAO is where the real action is taking place.
Fears, however, of excessive stocks going into summer have not entirely subsided. Witness the several cent drop in futures prices this morning's session. At the same time, spot prices for lampante and virgin olive oil were up 8 and 6 cents respectively today, the latter on very respectable volume. The Olive Oil Gazette continues to believe that risks in this market are almost entirely to the up side.
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The MFAO recently sent out a letter to all interested parties announcing that Mr. José Luis Alonso Fernández has recently been appointed Director General of the exchange. At the bottom of the copy received by this writer, Mr. Alonso hand wrote the following very kind words about the Gazette (translated from Spanish):
'My most sincere congratulations for your magnificent website, at a level with the best commodities sites.'
We most humbly thank him and wish him all the best.
Is there any particular reason that The Olive Oil Gazette has recently found itself regularly getting hits from American servers courtesy of search queries like:
olive oil shortage April 2008
Please advise. Thank you.
For those of our readers who might be concerned by the very low price for extra virgin olive oil registered by PoolRed this week - a couple of words to the wise. When, yesterday morning, the spot price printed at under 2.39€/kilo, the accompanying volume was 104 tons. That would mean that slightly more than four tanker truckloads had been reported as sold in the last week. Were the market any slower, it would be stopped. The EVOO prices posted by the Agencia del Aceite de Oliva, those who maintain PoolRed, become extremely unreliable in slow conditions - as any reader who noted the very accompanying small change in virgin and lampante. This is because they are volume-weighted averages of five days of voluntarily reported transactions. One can imagine any of various scenarios that would produce this abberant figure:
1). The sale of 100,000 kilos of borderline acidity EVOO from last year's crop;
2). A typing error, like hitting '3' instead of '4', made when reporting the sale;
3). Actual bad will. Knowing how the price is calculated, in very slow periods any individual dealer is perfectly capable of manipulating the posted price.
There is no more reason to consider this price 'real' than there was a few weeks ago, when EVOO soared 8 cents (to 2.70€) as lower grades were beginning to break support downward. That was the opposite case - low volume allowing the price to be dominated by a sale of 0.1% arbequina. The better strategy for any price-watcher is to make a rough guess as to the normal premium that their particular EVOO carries over virgin and calculate it on the basis of the latter.
Yesterday's screen is posted below.
In its recent attempt to control the amount of water being used for irrigation out of fear of drinking water shortages, the Confederación Hidrográfica del Guadalquivir has been shutting down installations that it deems 'illegal'. A case in a nearby town apparently involved the CHG moving in and, it is said, blocking with concrete a certain farmer's access point. The man's reaction brought to light the fundamental deficiencies in the way that government organism manages water resources in the Guadalquivir River watershed. The gentleman in question contracted a notary (at considerable expense, we might add. Those people don't come cheap.) to visit the installations of 'eight or ten' irrigation co-operatives in the province of Jaén, each known to be operating without having all their papers in order, to certify that they were all refilling their reservoirs in the wake of recent heavy rains. With this evidence in hand, he has initiated proceedings which will presumably have these co-ops charged with some infraction or another in the local courts. His aim, of course, is to force the CHG's hand.
There being very little doubt that the gentleman's assessment in this cases, we will concentrate on the very ill-defined concept of legality in these instances.
Typically, the Jaén irrigation co-op will have contracted and performed all the work necessary, and will have begun to distribute water to members, on the basis of verbal approvals, promises and assurances from a whole array of public officials, and will have set in motion all the official procedures to be legalized. But approval never arrives. In technical terms, they are operating illegally. The response of the CHG is to levy fines for the illegal uptake of water, and these just fall under the general category of 'operating expenses'.
The situation becomes all the more interesting in a year such as the current, in which refilling of reservoirs was explicitly banned by the authorities. Suddenly, it starts to rain heavily and the stream from which the co-op is drawing its water is flooding its banks. In this case, the CHG does not withdraw its prohibition, but word is 'got out' that the pumps can be turned on. The standard conduit for this information is 'somebody' within a farmers' union with access to the CHG's far-seeing policy makers. This same person will also inform, in a timely manner, when the party is over.
Occasionally, though, the matter may become very complicated. A couple of years ago, the co-op to which the current writer belongs (he has the huge sum of 92 trees that fall within its boundaries) was charged in a private complaint with 'degrading the natural environment' by a farmer living downstream from its uptake point. Strictly speaking, he was not mistaken in his assessment, seeing as the co-op started drawing off water when there was not enough flow. The charge was eventually withdrawn, but a certain obfuscated entry will be found on the debit side of the co-op's accounts to give testimony to what that game was all about.
Now, the gentleman whose actions initiated this article in no way wishes to inflict hardship on the other olive growers of the province of Jaén. But one can fully understand his frustration at the very flexible concept of 'legal' that seems to be the hallmark of water use policy in the Guadalquivir basin.
The Jaén province chapter of farmers' union, COAG, has publicly accused the bottling industry of stemming the flow of olive oil to the stores in order to reduce sales. In an April 7th article in Europa Press, COAG claims that this year's notable 10% year-on-year reduction in Spanish domestic demand, despite flat prices, is a result of speculation on the part of the bottlers - as evidenced by the slow market and their large quantity of stocks. The argument is that the industry is hoarding olive oil in the hope that store prices rise, or producer prices fall, in response.
Although not impossible, the Gazette finds it difficult to imagine that a grocery chain, Carrefour say, is ordering 100,000 litres and only receiving 90,000 from the packager or, if that is indeed the case, that shelf prices are not rising in response. A more simple solution to the dilemma would be to assume that the very marked rise in many food products, coupled with rising unemployment and a weakening economy, over the last year is forcing shoppers to make substitution decisions when restocking their pantries. Cheap as it may be with respect to production costs, olive oil continues to be very expensive relative to other vegetable fats and may find itself being marginalized by economic necessity.
COAG, on the other hand, cannot come out and say that EVOO is not selling because the record prices that wheat and corn are drawing, for example, are making bread and meat products too expensive - at least not without alienating the cereal growers among its members.
In another example of large marketers of olive oil entering directly into the supply side of the business, the April 10th edition of Levante-EMV reports that the Sovena, the company that supplies olive oil to the very large and successful Spanish grocery chain, Mercadona, is accumulating lands in the Spanish region of Extremadura as well as in Portugal and Morrocco in order to ensure supplies and control prices paid. The article points out that the company has not officially confirmed the size of its investment, but that it is thought that they are amassing some 5,000 hectares in total. One would assume this would be for super-intensive plantations.
That the farmers' co-operatives should be taking note of this evolution is to state the obvious.
A reminder to all those interested in knowing more about (and doing business with) the Turkish olive oil industry that the Eurasian Olive, Olive Oil and Processes Fair, Anatolive, gets underway on Thursday, April 17th. Sponsored by the Turkish government and various industry organizations, the event takes place at the Istanbul Expo Centre through Sunday the 20th. This year will feature almost 100 exhibitors from all sectors of the business.
Complete information can be found at the Anatolive website.
Any of our readers who have gone through the difficulties of learning a second language will be aware that the real test of comfort and fluency in the new idiom is the ability to understand its humour. In this regard, we received an e-mail yesterday from a correspondent whose mother tongue is not English wondering how we could have come to the conclusion that, ...the driest Andalucian autumn-winter since 1912 - combined with restrictions on irrigation - is going to result in a bumper crop for 2008-09. What we meant to convey with this sarcastic comment was that it was inconceivable, under the current conditions, to imagine a good crop in this part of the world in 2008-09.
Arguably, it is possibly not the best policy for a writer half of whose readership is not natively English-speaking to include snide remarks and covert criticisms of this sort in his pieces. On the other hand, much as he might try to control himself, that is the nature of his character - in real life also. Regardless, we will attempt to at least minimize the occurance of this kind of thing in the future.
The same reader was kind enough to supply us with a short list of recent lampante olive oil transaction on the Izmir Mercantile Exchange in Turkey. The average price for the day in question was 4.71 Turkish lira per kilo. Using a euro exchange rate of 2.016, we come up with a little under 2.34€/kg. Hopefully, this gentleman will keep us updated regularly.
Futures Prices
Those who follow olive oil futures both in the Gazette and on the MFAO website itself might note that there are sometimes discrepancies between transactions related on the two sites. Today would be an example of that. The exchange reports crosses in both the September and November contracts, at 2.44 and 2.46 respectively, which we have chosen not to include in our sidebar spreadsheet. The reasoning behind this is that the two trades are what are described as aplicaciones wherein two parties agree to a price outside of the market but implement the transaction through the MFAO in order to use their margin and guarantee facilities. These are not anonymous, open market price setting trades per se, and we choose not include them because they have no effect on the current at the time bid and ask.
A quick look at the front month lampante futures chart on the left will give the reader an idea of the violent correction that has taken place in olive oil producer prices over the last couple of weeks. Today's close of 2.40€ for May delivery represents a 14 cent drop from Easter levels. One has to think that concerns over demand in a recessionary economy have to be behind this. It cannot, after all, be some belief that the driest Andalucian autumn-winter since 1912 - combined with restrictions on irrigation - is going to result in a bumper crop for 2008-09.
But there may be something to it all. The MAPA reports for the end of February indicate that Spanish domestic sales of olive oil are down 7% year-on-year and, despite increases in exports, stocks as of that month were the highest on record - surpassing slightly those in 2003-04.
Suffice it so say that we are more than surprised at the current state of affairs, as was the less than happy mill manager we spoke to this morning. But, even if abundant rains forecast for this week materialize, this grower has a hard time imagining lampante falling much below present levels. At least we hope.
Whether it is the moment to get long into the market is another matter. That kind of buying into falling prices is usually referred to as 'catching a falling knife', and for good reason.
It is interesting to note how traffic to this blog is influenced by news events. This past week, for example, saw a a notable increase in referals from search engines responding to requests for various combinations of words like 'export', 'import' or 'market', combined with the country 'India'. This would be an instant reaction to the news that the Indian parliament has approved the drastic lowering, although not the elimination, of import duties on olive oil. Currently at either 40 or 45 percent, depending on the grade, they are set to de dropped to 7.5 percent across the board. It seems this will result in a 15 percent drop in prices on the store shelf - and a correponding uptick in demand.
Kudos to the e-mail correspondent, son-in-law of a retired Indian M.P., who informed us in February that the bill's passage looked likely. Maybe Michael would let us know when the measure becomes effective.
The olive oil futures market, MFAO, is once again offering a two-day course to certify and licence traders on the exchange. It is to take place on the 28th and 29th of April at the Baeza (Jaén) campus of the International University of Andalucía. Those interested can inform themselves better at the UNIA website.
As we remarked to a friend recently, in light of the recent interest in virgin grade olive oil on the spot market, price moves for that category often predict similar in both lampante and extra virgin, particularly if they were accompanied by heavy volume. Today, both are up 6 eurocents as reported by PoolRed, with virgin flat following the recent surge. The reason behind this would be that there is one very dominant and trend setting player in that market. If other participants, rightly or wrongly, think that they are active, prices across the board will soon follow.
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