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Spain concerns send olive oil prices soaring

Drought in Spain, which has raised expectations for the country's grain imports, is provoking concerns of poor prospects for one of its main exports, olive oil, for which output may tumble at least 40%.

Prices of extra virgin olive oil rose 10% last month on the benchmark MFAO Olive Oil Exchange in Jaen, Spain, the top producer of the commodity, responsible for some 40% of world output.

For virgin olive oil, prices soared 21%, topping E2 a kilogramme.

The increases reflect concerns that hot and dry conditions are to prompt a repeat of 2012, when olive oil production halved, only to rebound strongly in 2013-14, which ends in September- in part because the previous crop's poor performance allowed for improved flowering and fruit setting.

'Does not bode well'

Oil World, the influential analysis group, said: "The recent dryness and heat may curb Spanish olive oil production.

"Drought and heat in May and June have hit olive trees in the blooming period. This does not bode well for yields in 2014-15."

With trees also suffering some stress thanks to the current season's record output, of 1.92m tonnes, up from 710,000 tonnes last season, some forecasters are predicting a drop of at least 40% in output, Oil World said, adding that the concerns were curtailing producer selling.

Some Spanish co-operatives are forecasting a crop below 1m tonnes.

Speculators catching on?

Dryness has struck Spain in areas including the top producing areas of Andalusia, responsible for some 80% of domestic output, and second-ranked Castile-La Mancha, with a share of about 6%.

With Spain by far the world's biggest exporter, with volumes typically exceeding 800,000 tonnes a year, the prospect of a poor 2014-15 olive harvest would raise concerns over availability, as evident in the rising prices.

However, some commentators have raised ideas that, with Spain's stocks said to have rebounded above 1.0m tonnes thanks to its latest, bumper harvest, including nearly 780,000 tonnes at mills, other factors may also be involved in the rising prices.

Yago Cruz, chief executive of Cruzoliva, a Spanish supplier of bulk olive oils, said that speculators have "entered the game", attempting to cash in on the rising market, while some mills have shut down sales while prices are rising, seeking higher values, and further fuelling the market increase.

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