Olive oil prices recently experienced a notable surge, marked by the Mintec Benchmark Price (MBP) for extra virgin olive oil from Andalusia [Mintec Code: 8G39] reaching an unprecedented €9.20/kg. This all-time high, as per Mintec's 20-year data, has now moderated, settling at €9.10/kg on 26 January after a consecutive decline of 5 cents per week over the past two weeks.
Market observers attribute the decline in prices to various factors. One of the contributing factors is the improved weather conditions in Andalusia, with reported rainfall in key areas. However, concerns arise as some note the counteracting effect of early summer and spring temperatures, which may swiftly evaporate the recent rainfall before adequately nourishing the trees.
Market players have expressed concerns regarding consumption trends, citing a decrease influenced by the elevated retail prices of olive oil. A trader conveyed, "We are seriously concerned about the price levels; we are talking about a bottle of olive oil costing as much as a fairly good wine. We hope that people understand the production and supply situation behind the current price levels."
Additional concerns have emerged regarding further potential declines in consumption, driven by apprehensions of recession within the EU. Historically, consumers in such scenarios tend to be cost-conscious, often substituting premium products like olive oil with more affordable alternatives. If this holds, market players suggest that demand for olive oil at these price levels could diminish, adhering to the adage that 'high prices cure high prices.'
The olive oil market, however, faces complexity due to lower production estimates attributed to poor early yields in major producing countries, including Spain, Italy, and Greece. Initial projections for Italy anticipated 290,000 metric tonnes of output for the 2023/24 marketing year, notably lower than the past five years' average, owing to persistent drought conditions. Greece confronts similar challenges, with industry insiders now predicting around 120,000 metric tonnes of production in 2023/24, a significant drop from the previous year's 340,000 metric tonnes.
Spanish estimates initially proposed by various market players at 750,000 metric tonnes of olive oil production in 2023/24, have now been revised down to around 680,000 metric tonnes or lower according to sources familiar with the situation, importantly this is down over 20,000 metric tonnes since Mintec’s last market update on olive oil which can be found here. Despite surpassing the previous season's 630,000 metric tonnes, concerns have arisen regarding the absence of substantial carryover from the old crop, potentially leading to similar or diminished supplies compared to the previous year.
Mintec has received information that retail contracts are expiring, exposing market players to current olive oil price levels, which have risen by approximately 67.5% year-on-year. These contracts previously allowed market players to receive olive oil deliveries at prior years' prices, providing insulation from the significant price increases. Industry insiders suggest that this may necessitate an increase in olive oil prices on the shelf, as absorbing this level of cost increase becomes unsustainable, requiring a 'passing on of the cost.'
For further insight join our upcoming webinar, "Steering the Olive Oil Landscape - Supply, Quality, and Sustainability Insights." Mintec market reporters will delve into challenges in the olive oil market, providing valuable insights to help you navigate the changing market dynamics. Don't miss out – register now to secure your spot!