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European Olive Oil Market Report - May 2024
Main Market Figures - Spain
In April, the Spanish olive oil market yielded significant price and output fluctuations, with keen anticipation for the AICA report. In summary, prices rose steadily, sparking concerns about potential implications for olive oil availability in the upcoming summer months, given the reported high output rates.
Weather Conditions
In April, the weather conditions provided an adequate amount of rainfall during the flowering season without the need for heavy downpours. Water reservoirs are now replenished to satisfactory levels, ensuring sufficient irrigation throughout the summer months and potentially leading to a better crop next year. Specifically, Andalucia, Spain's main olive oil production area, has reached 43.48% of its water reservoir capacity. The forecast for May is also optimistic, with temperatures expected to remain within normal ranges.
The current state of water reservoirs in Spain is showcased in detail in the following graph:
Consumption
In the previous Monthly Focus on Oils, a decline in consumption volume was attributed to the Easter Holidays' lag. However, this month tells a different story, with outputs reaching 84,144 tons, encompassing both domestic sales and exports. This substantial 25.49% surge has led to volatility in stock availability, raising concerns about an inevitable shortage of Extra Virgin Olive Oil (EVOO), given the six-month gap until the next harvest. To efficiently manage the available stock, it's advised to cap monthly outputs at around 65,000 tons.
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According to AICA's report, the minimum viable carryover is set at 180,000 tons, while the Real Market Stocks for the next season have actually decreased to 395,000 tons. The surge in outputs this month has contributed to an upward trend in the average outputs over the past five months, reaching approximately 75,500 tons. The average output for 2024 stands at 77,857 tons, contrasting with last year's challenging crop yield of 68,627 tons.
Harvest
With six months left until the next harvest, the total crop stands at around 850,157 tons, with packers holding 176,936 tonnes and farmers retaining 397,722. Weather conditions during the critical stages of olive oil fruit development are fostering optimism among producers, as effective management of irrigation challenges during the summer season appears feasible. There's a prevailing positive sentiment regarding Spanish olive oil production for the upcoming year, especially following the significant impact of drought on the sector over the past two years.
Our View
April's output volume was eagerly awaited as the market strategized its approach to pricing. Despite historically high prices, consumers have not been deterred from purchasing olive oil, even as its availability becomes increasingly precarious. Extra Virgin Olive Oil stands out as the primary category at risk of being out of stock until the next crop arrives in November. Producers and packers must carefully consider this situation when engaging in further transactions until November.
As previously noted, the limited stock of Extra Virgin Olive Oil (EVOO) creates significant tension in the market, posing challenges for packers in sourcing quality olive oil even when some remain available. Additionally, packers appear to be adopting a strategy of stocking only what they are actively selling to prevent overstocking and maintain low costs. Furthermore, the overall optimism in the market regarding a better crop next year is encouraging packers to avoid accumulating large quantities of olive oil.
The focal point of this month's report revolves around whether consumers will be willing to accept potentially higher prices resulting from oil scarcity and increased market demand. Should outputs decrease in the coming months, especially nearing the next crop, it could lead to a potential price retreat.
Main Developments in Greece
In Greece, the market has remained relatively subdued over the past month as olive oil producers are hesitant to offload their stock, foreseeing imminent price hikes. Similar to the situation in the Spanish market, where supplies are limited, Greek producers are biding their time for favorable selling opportunities. Presently, packers hold 30% of the olive oil inventory, while the remaining 70% is stored at cooperatives and mills.
Prices are mirroring Spain's upward trajectory, with Extra Virgin Olive oil priced at around 8.25 euros, and reports suggest that Cretan olive oil commands a higher price compared to that from the Peloponnese. Overall, there are still ample stocks of high-quality Extra Virgin Olive Oil (EVOO) available. Nonetheless, producers are hesitant to continue transactions with their oil presently, anticipating a rise in prices in the near future.