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How are Olive Oil Prices going to behave? That's the Million-Dollar Question!

How are Olive Oil Prices going to behave? That's the Million-Dollar Question!

2017/14/03 - Based on the latest provisional data from the Food Information and Control Agency (AICA), we wanted to gather the opinion of several proffesionals, who have analyzed the evolution during this campaign of a unique market situation.

The provisional data published by the AICA, facilitated by the Asociación Agraria de Jóvenes Agricultores (Asaja) of Jaén, detail that Spain has produced in the first five months of the campaign 1,230,000 tons, whereas in the specific case of Andalusia the accumulated figure is of 1,006,000 tons. The data regarding market outlets is high, with 136,500 tons in February, the second best monthly output so far this year and the second best outlet in the last five seasons.
Meanwhile, total stocks at the end of February amounted up to 987,300 tons, which means 25,000 tons more than the previous month and 99,100 tons less than the previous season.

Historic year?
The CEO of Luque Ecológico, Juan Manuel Luque, believes that this year can go down in history as showing the largest figure for Spanish sales of olive oil, since to the high prices we can add a crop that, although being lower than what some operators expectated, it is among the best ten in History.

For Juan Manuel Luque, "we can agree that prices are too high, that we are going to lose market share, that bottlers lose money... but the reality, which is very stubborn, shows us that every month there are more kilos of oil and the price is higher and higher." According to him, "we have the perfect storm heading the olive oil sector and only Spanish producers have the capacity to rise or lower the oil prices worldwide. At this moment it is our responsibility to maintain high but stable price levels. The only thing we know for sure is that the sooner the prices increase, the sooner they will decrease in the same campaign," he said, while pointing out that "we could choose to continue supplying the market on a continuous basis or to keep the oil and wait for the ridge of the wave hoping that the wave does not fall on us."
In his opinion, "large groups -which are the ones with the large quantities of oil- are going to have the responsibility of continuing to supply the market and not let the price soar to levels that we could regret."

Italian demand
The CEO of Oleoestepa, Álvaro Olavarría, believes that the evolution of prices will depend firstly on the demand of Italy, since this year the production of the transalpine country "barely reaches 200,000 tons and with a terrible quality, consequently the insufficient good oil is at much higher prices than the rest of the supply of the Mediterranean, which is scarce also in countries like Tunisia and Greece. Therefore, according to Olavarría, this demand will also depend on the degree of coverage of the Italian packaging industries, the evolution of sales in that country and the foreign trade of these companies, "which already show significant declines."

Likewise, the CEO of Oleoestepa has highlighted that the tension regarding prices at origin will depend on the demand of oil in Spain, "which, if the current price war of the private label continues, will not suffer great decreases in sales, only of those brands that transfer the rises in origin to the bottle."

Finally, Olavarría explained that another reason that will condition the evolution of the prices at origin will be the precipitations that take place in spring in Spain and especially in Andalusia. "This is a market of expectations, very sensitive to what can happen in the medium term and this will not be the first time that having low stocks, prices fall (autumn 2006), and having high stocks, prices rise (January-October 2012)," he has specified.

Strong prices
On the other hand, the Director of Olive Oil Purchases of Sovena, has ensured that in the current context of a campaign that will hardly exceed 1,300,000 tons, it is easy to think that prices will remain strong, although he has considered that the doubt is whether consumption will react when these prices are reflected in the final consumer.


In addition, Quero has pointed out that it will be necessary to be aware of the influence that rains will have and the evolution of consumption, since "these factors will determine the market's development in the medium and long term."


Difficult and uncertain situation
Luis Miguel Algar, head of Deoleo's Purchasing Department for Raw Material, underlined that although it seems difficult to reach a production of 1,300,000 tons, finally, the amount of oil produced plus the campaign link ensures availability of Raw material for the year. According to Luis Miguel Algar, outlets are being good, as the first months of the campaign were characterized by high purchases that are now being withdrawn. On the other hand, at this price level, he considers that consumption is suffering a standstill, and coverage will last longer. "I understand that part of the production loss has already been discounted at current market prices because this level is not common for the availability of oil in the month we are in. In addition, packers have significantly increased their stocks indicating that they have availability for sales coverage," he has highlighted.

In his view, the situation is "complicated and uncertain" and in the short and medium term there are no predictions of a substantial fall in prices at origin; "only a slightly aggressive demand (Spain and Italy) and a favorable weather evolution can offer some stability to the current situation, while the opposite will generate tension." At this price level, Algar believes that the offer will flow in a quiet manner, being quiet in some operators and more intense in others, but "there will be availability, since there are good prices for sale."

Regarding the second part of the year, the head of Deoleo's Purchasing Department for Raw Material has stated that the market situation will be relaxed if Spring progresses favorably and a good 2017/18 campaign is confirmed, also in the Mediterranean (Italy, Greece, Tunisia ...). "If, on the contrary, all these data dissipate in a different way, we will have more tense situations," he has stressed.

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