Olive Oil Monthly Report: March 2024

European Olive Oil Market Report - March 2024

Main Market Figures - Spain

February was a month characterized by multiple and diverse movements in Spain, the heart of olive oil production worldwide. These movements assisted our commercial managers and experts in expanding on the latest results of their analysis of the olive oil market and showcasing the trends, opportunities, and threats that have recently arisen.

Harvest
The monthly production volume for February was 54,215 tons. This brings the accrued total for the season as of February 29 to 829,515 tons. Olive oil production in Spain ultimately surpassed even the revised expectations, placing production forecasts of around 800,000 tons in their most optimistic phase.

Consumption
Consumption receded by 9.14% to 76,272 tons, though this reduction was not enough to cap the previous month's record-level rise. As a result, the average monthly consumption so far in 2024 is estimated at around 80,000 tons, much higher than the 68,627 tons monthly in 2023.

The movements above led the total available olive oil stock in Spain as of February 29 to 712,337 tons. This quantity consists of 185,000 tons stored by packers around the country, and farmers still hold 527,000. The estimated minimum technical carryover (i.e., the minimum functional stocks of packers) of approximately 200,000 tons for Spain leaves a quantity of about 512,000 tons available for the domestic market to operate until the beginning of the next season, which translates to a period of 7 to 8 months. 

Given the current consumption levels and the robustness it has shown in the near past, there is the possibility of the actual market carryover reaching absolute zero during the summer.

Weather Conditions
In the concluding weeks of February and at the beginning of March, Spain experienced a good amount of rainfall. However, this development affected northern territories more than southern ones. In the autonomous region of Andalusia, where more than 80% of the national olive oil production is located, the water reservoirs only increased by 2.67% and reached 29.41% of their full capacity. This was also the case for Gualdaquivir, whose water basin is the most relevant for olive tree growth.

The current state of water reservoirs in Spain is showcased in detail in the following graph:

Our View
Despite the high and robust consumption levels and the potential shortage by the end of the current season (September 2024), we have observed slight price drops from the region 9 EUR to 8.6 EUR for EVOO. It seems like the urgent liquidity needs of some suppliers constitute one factor leading to this. Furthermore, we need to stress the effects of recent rainfalls on market behavior by influencing the next crop's expectations to a more optimistic view. Fields have recently received decent amounts of water, and the reservoirs in olive grove-rich regions are now looking better. If the weather continues down this path until June so that the flowering of olive trees takes place under favorable conditions, the forecasts for the next crop can be rather positive. 

Until then, though, the direction things are going to take will be heavily linked to the response of market operators of both the demand and supply side to the developments discussed above. With total available stocks in the market of about 512,000 tons, if buyers decide that it is optimal for them to benefit from the current low prices, then the grim zero-carryover situation possibility would be open once again. At the same time, the suppliers' side of the market recognizes that the more positive the next crop outlook gets, the lower the levels that prices could reach in the fourth quarter of 2024. As a result, should they prioritize the current price scenario without waiting for the fourth quarter, which could be much less profitable, they would contribute to the same outcome.

Therefore, even if the latest data on the harvest and weather situation allow for some reasonable level of optimism, the timestamp of stock depletions is directly tied to upcoming consumption levels. The paths the market may tread are clear: either consumption drops or stocks might be over by June or July 2024.

The short-term but definitely effective preventative measure against diverse market movements would be for farmers to raise their selling prices. This is against the common business practices of most farmers, though; they tend to prefer to liquidate part of the stocks in the short term so that they have some steady cash flows. 

We expect that this is going to continue for a few weeks to come, but after the stock situation becomes alarming again, price hikes will follow getting into summer.

Main Developments in Greece

The harvest in Greece concluded with a total production volume of about 140,000-175,000 tons of olive oil. This makes the 2023/24 season the worst in the olive oil sector of the last 6 years. Not only was the total crop lower in the season that passed, but also the participation of EVOO in the mix of olive oil produced dropped to approximately 70%.

This was mainly due to the olive fruit fly problems, which were exacerbated by the prolonged periods of dry and hot weather that spanned deep into the cooling season of the year. This situation more or less kept on even during winter, which was one of the warmest ever, with rainfalls at extremely low levels. The weather conditions in Greece have started shifting in recent weeks; thus, we will be able to start making accurate projections for the next crop (2024/25) in the following months after the movements of spring rainfalls and temperatures have unfolded.

As for the current market situation, the Greek olive oil market is stagnant; producers are holding on to their limited stocks in anticipation of prices rising further. At the same time, demand is rather faint, with no decisive movements on the horizon for now. Thus, it is hard for us to predict how the market will evolve.