Great uncertainty in the olive markets: the rains seems to be the key

Great uncertainty in the olive markets: the rains seems to be the key

2018/15/02 - Once the provisional data regarding January 31, provided by the Spanish Agency for Food Information and Control (AICA) -as expected in terms of production and very positive in terms of outputs- have been released, which clearly mark the current campaign, from Mercacei we have gathered the opinion of some leading operators in the sector in order to know their impact and effects in the coming months.

For José María Penco, Director of the Spanish Association of Olive Municipalities (AEMO), these data "do nothing but ratify the latest forecasts and prospects, that is, Spain will produce 1,150,000- 1,200,000 tons. If we add the monthly outflows of olive oil that are taking place -around 100,000 t./month- we can confirm two things: first, that it will be an extremely balanced campaign between production and consumption; and second, that the current price levels will remain stable until the next mystery is solved: the level of rainfall during spring, which will undoubtedly condition the flowering and, therefore, the next season. "Regarding the different categories, "we can confirm that, due to the circumstances of the harvest and the weather, it will be a year in which the extra virgins will be valued more compared to the lampantes, which seems positive and consistent with the message that from AEMO we have repeatedly launched: let's produce quality because it is the only possible future," he adds.

Let´s see the opinion of the producers. Álvaro Olavarría, Director of Oleoestepa, considers that the provisional figures of olive oil production in Spain until January 31 "are very in line with the estimates made at the time by the Andalusian Ministry of Agriculture, the Spanish Ministry and Cooperativas Agro-alimentarias. It would be necessary to add the productions of February and March, which will finally bring us closer to 1,200,000 tons. If these data are fulfilled in Spain, and taking into account the good productions in the Mediterranean countries, we will find a total availability that will guarantee we cover the world needs without tensions in the prices; although Spain loses weight and we will export less than last year, with Tunisia and Greece playing a more active role in serving Italy." Considering the current variables -less exports, lower domestic consumption and similar imports regarding last year- Olavarría is convinced that "we will arrive at the end of October with a sufficient stock in Spain; accentuating the difference in prices between lampante and extra virgin qualities". Finally, the Director of Oleoestepa remembers that " rains in Spain during the next 100 days have the last word in the behavior of olive oil prices in origin in the world".

On the other hand, Cristóbal Lovera, agronomist, expert in olive growing and olive oil and producer of Hacienda Fuencubierta, believes that the market will remain firm despite the fact that demand is short, "given the degree of coverage that packaging currently has. The fundamental reason is the uncertainty that currently exists in the sector, not about this year's harvest, which with the January data is sentenced, but about the mysteries that hang over the next campaign.

Two Scenarios
In the complete analysis of Carlos Jiménez, Operations Director of Acesur, "production is greater than expected and today we can confirm that we will have more than 1,200,000 tons, a data above the initial estimates of 1,150,000. t. Exits have recovered compared to last month, most likely due to the delay in the entry of imported oils due to logistical problems -of the 25,000 t. expected, only 12,000 have entered-. As for the packers, they continue to increase their stock due to the increase in imports -today they have more than 181,000 t.-, which allows that the exits to the market are very controlled; at the time when Italian packers do not appear, supplying the production of the Mediterranean Basin, especially Greece and Tunisia".

Given this situation, what will the evolution of the market in the short and medium term be? "The Spanish production already has nearly no arguments not to sell at current prices, only the alleged lack of rainfall means that production remains relatively firm at current prices. It is clear that the only factor that can condition the evolution of prices today is rain. In this sense, if the rains remain between 50-60 liters per month we would reach a cumulative in June 2018 of between 400 and 450 liters, enough to think of a 2018/19 crop of medium type, close to 1,400,000 t. In this scenario, prices should fall and reach levels in May between € 200 and € 400/t. inferior to the current ones," he explains.

"But if the rains are scarce -less than 30 l. monthly-, we would reach a scenario of uncertainty for the next harvest and, therefore, during February and March prices would remain at current levels, but in April we would experience a price increase that would take us to levels between 100 and 200 €/t. above the current ones," he concludes.

Luis Quero, Purchasing Manager of Sovena, points out that "this year's production will be very much in line with the estimated, since on January 31, Andalusia has already achieved 87% of the predicted amount and in the rest of Spain it has surpassed itself widely. Regarding exits, this month they have been positive, although the evolution of prices will also be influenced by the weather, flowering and the behavior of the markets in the rest of the Mediterranean countries".

For his part, Luis Torres Morente, CEO of Aceites Maeva, highlights the outputs data for January, "a pace that I don't think will be maintained". Regarding production, the data at January 31 "clears the question of whether we will reach the official estimates: we will reach and exceed them. What is clear is that we will not be missing oil this year."

Water, water and more water

For Luis Miguel Algar, Purchasing Director of Deoleo, "the situation must remain as it is, even if the producer remains calm this trend of decreasing prices can slow down. The prices of lampante and virgin will suffer more and will be the first to move the offer... the problem is that from there many extra virgins will be billed and manufactured, and that will create certain disadvantages. Extra virgins must defend themselves and stabilize in price, and even more with the lower quality of this year -reaching around 20% of extra virgins in total-".

"In Spain, says this executive, if we estimate a campaign of 1,150,000-1,200,000 tons, we will have average outlets of around 90,000-95,000 tons, which we exceed nowadays." The forecasts for the second part of the year "will depend a lot on the rainfall in spring. In the short term I understand that the situation will oscillate between 10-15 cents up or down depending on what the balance between supply and demand is. We can have a mass of oil around 3.20/25 and 3.50/55 euros and some Premium extra virgins, all waiting for the final data of production and outputs, and of course to see the rains that fall in spring".

Water, water and water. That is, according to Rafael Gutiérrez, Director of Bulk Operations at Dcoop, the keyword. "Without reaching last year's production, the forecasts the Andalusian Ministry will be exceeded and will reach 1,200,000 t. We are yet surprised by the high outputs, with a campaign link that will be more than enough, around 400-500 million kilos". Gutiérrez points out that, for the next year, "production in the Mediterranean Basin (Tunisia, Turkey, Italy and Greece) will be lower, and everything will depend on what happens in Spain. And the production will depend on the amount of rainfall. However, with the data of the AICA regarding mid-March many things will be clarified". In terms of prices, the Dcoop Executive is betting on a bearish trend, unless the lack of precipitation persists and this could reverse the trend.

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