Extra Virgin Olive Oil, more exclusive than ever

Commodities market worldwide is facing a strong downtrend due to the excess of supply in basic metals and energy products such as oil and natural gas. The origin is the weakness of the demand generated by the reform of the Chinese economy, which is the first global commodities consumer. The change of an industrial economy to a domestic demand economy does not require an intensive use of commodities. In spite of the general decline of commodities prices, Extra Virgin Olive Oil has skyrocketed 60pc in a year to EUR 4,000 per ton and it has been increased 23.31pc year-to-date in origin.

This behavior becomes olive oil as the most exclusive product in the “Mediterranean Diet” both in prices and in quality. This year-on-year growth on Olive Oil prices is explained by two factors: on the one hand, global demand remains flat with a substitution effect between national production and imports in Spain (23,600 tons, an imports record since April 2010). On the other hand, there is a supply scarcity that extends from now to the future. This is because market expects a much lower harvest than in the past campaign 2014/2015 (835,700 tons) that was the lowest since 2012/2013 (the historical minimum is at 618,200 tons).

In this sense, the supply scarcity can be also observed in the evolution of inventories that is reflected in the following figure. It is observed how last data indicates a relative minimum of the last five campaigns thanks to the growth of demand. Warehouses stored 426,200 tons last June (51.5pc less than in the past year).

The evolution of reserves and prices in origin show the expectation of a major scarcity of olive oil in the market after the last harvest under 900,000 tons in 2014/2015. This lower harvest has provoked 80% of oil stored in oil presses has been withdrawn in the first six months of this year. In this process, the key factor is the “heat wave” that affects Spain, France or Italy (the main production zones) since early June.

May, June and July are key months in the flowering and fruit set of olives. This process requires temperatures no more than 30ºC and constant humidity from rains. However, the weather has been very disappointing: temperatures have been above 40ºC in provinces like Toledo, Ciudad Real, Jaén or Córdoba as the last months have been the driest in the last years.

To sum up, the outlook of Olive Oil prices shows a better-positioned product in the market given a strong shortfall of supply. In the next two months we will see the quality and quantity of the olives with a good position against the rest of commodities. Prices are likely to be higher but with a tangible threat: consumers that substitute Olive Oil by other oils with less quality and price.

Disclosure: The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.