Spanish Olive Oil Stocks Draw Down While Production Estimates are Questioned

Spanish olive oil stocks are drawing down according to data from Spain’s Ministry of Agriculture, Fisheries and Food showing total system inventory falling from approximately 863,000 mt in April to around 775,000 mt by end of May, a reduction of roughly 88,000 mt in a single month as production registered just 1,917 mt during the period compared to the cumulative seasonal total of 1.298 million mt. The significance of this trajectory lies not in the drawdown itself, which is mechanically expected at this point in the campaign, but in what it implies for the supply position on new crop harvest. At current burn rates using historical EU commission data as a basis, total system stocks could arrive at harvest carrying as little as 200,000-300,000 mt less than half the 10-year average carryover of 517,000 mt recorded by the EU Commission, a gap sources noted leaves little room should the new crop fail to deliver on current expectations. 

The supply side of the equation has undergone its own quiet recalibration in recent weeks, with sources noting that enthusiasm surrounding the Spanish harvest, which only weeks ago was drawing comparisons to a record output of 1.8 million mt, has been tempered significantly as conditions on the ground are assessed against the backdrop of increased heat and a lack of rain forecast to continue in the coming weeks, sources commented. 

Market players said the situation is now being characterised as satisfactory but not excellent, a destination that is important since market players had been pricing in very large crops and optimism through the flowering period. Sources told Expana that they expect the crop to be estimated further downward in the weeks to come as further events such as heat stress, increases in olive oil fly or drought is likely to further subtract from the production estimate rather than add to it. That said, sources flagged the additional uncertainty of a strong El Niño scenario for the summer and autumn, which if realised could introduce production stress into a Spanish crop that the market is already treating with greater caution than it was a month ago. 

Players said the olive oil market is largely stagnant, with demand failing to respond to what have been weeks of steadily declining prices, raising questions about whether the current price levels are sufficient to stimulate restocking activity or whether the demand side of the equation has been more durably impaired than the supply adjustment alone can correct, sources commented. 

Relative values across origins are adjusting significantly, with market players saying Italian prices have corrected more sharply than other origins, potentially reflecting growing buyer resistance to elevated premiums in a softer demand environment where coverage urgency has diminished. Sources commented that a consequence could be large volumes still sitting with processors who at some point may be ‘forced’ to sell to obtain liquid cash funds, something with sources said could add further pressure to Italian olive oil prices. 

The resulting dynamic is one that market players described as a downward spiral in slow motion, prices are declining, but demand is still limited, while producers and cooperatives could face the need to sell into a market where buyers are operating on a hand to mouth basis, placing orders only as needed to fulfil existing customer commitments rather than building any forward pipelines. Sources noted that the same hand-to-mouth posture currently weighing on prices could, under a scenario of new crop disappointment or harvest delay, leave buyers with limited forward coverage at when supply uncertainty could be at its peak, a dynamic the market appears aware of but has not yet moved to price in, players said. 

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