And Now, The Good News

To break the monotony of us bitching about the dearth of suitable reading material, our readers might be interested to know that olive oil producer prices have recuperated approximately all of the losses they sustained during the great undoing of pretty well everything we hold true and dear. As to whether this trend lasts or not (note the blow-off top in the last couple of weeks) or whether this has any relevance beyond itself, it is hard to say. But considering olive oil remains a discretionary buy in most parts of the world and the coming crop looks to be satisfactorily large, perhaps a ray of hope is emanating from the province of Jaén.

In its own right, the price chart on the left (click to make it big) presents a beautiful example of one of the possible results of unequal access to information between competing groups - in this case, millers and bottlers. As late as early 2008, the general consensus among producers was, on the basis of there being a smaller crop than previously anticipated, that prices were headed considerably higher. The very concentrated bottling industry, on the other hand, gave every indication (at least in hindsight) of having being perfectly aware that demand was souring enough to make crop size irrelevant. The end result was fairly low harvest-time volumes and flat prices. This might have been taken note of by the atomized co-operatives that dominate the milling business except that, since the royal screwing they gave the buyers during the drought of 2006, the latter group had suddenly started mixing up their buying schedules so as not to reveal their intentions. The winter volume spikes typical prior to 2006 have since become, at best, muted.

The end result of this new way of playing the game was that the co-ops, convinced of the bull case as they were, refused to believe that the bid was anything more than a ploy whilst the purchasers had little need to budge from it. By late summer of 2008, and with still little olive oil sold, it was evident that the carryover between crop years was to be immense. Pressured to empty storage to accomodate the new production, prices dropped from around 2.30 to near 1.80 euros per kilo from August to December. Then, with all the expenses associated with the harvest and still little demand running headlong into the credit crunch and generalized panic, prices (which had recuperated about 10 cents) tanked to about 1.65 between late February and early May. One can see that volumes in this period outpaced those in winter.

We certainly like last week's 2.45 quote for extra virgin, but we have our doubts as to whether it will hold. The 100,000 tonnes that the EU recently permitted producers to temporarily remove from the market, and to off-site storage, may be of concern to bottlers going into the crop year change. But olive oil is a perishable that will have to be sold and the strategy may prove to be a failed attempt to string the problem out, bank-like, over a longer time frame.

As an aside, the writer was interviewed yesterday about this topic by a crew from the BBC. Apparently, the fruits of this will appear on BBC World, the website and on radio via the World Service on September 4th or 5th.

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