Why does the price of bulk olive oil change?

Posted by Hannah Broaddus

Commodity Market Goes UpThe price of bulk olive oil changes on a daily basis around the world and it is, in essence, a commodity item.

What is a commodity?

A commodity is, by Webster’s definition, “a raw material or primary agricultural product that can be bought and sold.” Many raw food ingredients are considered commodity items; to name a few, wheat, sugar and soybean oil are good examples here in the US. For the most part, commodities are bought in very large volumes (many truckloads or railcars at a time) and contracting prices is common.

One of the characteristics of a commodity is that price can change by the day, hour or even minute. It is affected by things like supply and demand, import and export trade policies, international politics, local and global crop production and many other factors. In the US, many of our commodities are regulated by the Chicago Board of Trade which gives buyers and sellers a baseline for their prices.

What makes the price of olive oil what it is?

The daily price for olive oil depends on a number of factors, very similar to all commodity items. But olive oil is also affected by unique factors unknown to many outside of the international supply industry. For the most part, the bulk olive oil market is based on:

  • How much olive oil is in the world at the moment, including that available for sale and in reserves
  • The total olive oil available in that particular country of origin
  • How ample the next harvest season is predicted to be, in some of the major producing countries (particularly Spain)
  • How much olive oil is being released from the international reserves by producers
  • How much of a particular grade is produced, compared to the rest of the common grades available for purchase
  • The global demand for olive oil (e.g., if farmers know they will be able to sell it later if prices rise, they sometimes hold on to oil in low production times)

How does this affect your olive oil?

How much you’re affected by these daily/weekly fluctuations in price will depend on how much you buy, and who you buy it from. For example, let’s assume that you do not contract in a rate for your olive oil. If you purchase 30 truckloads a year from a national supplier, it is likely that your rates will fluctuate to follow the international market each time you place an order.

If you buy one tote from local US inventory, it may not affect you as much on a weekly or daily basis. The reason for this is you will be pulling from large volumes of inventory that a national supplier has brought in. You see, large suppliers secure contracted pricing for a specific period of time depending on how much they distribute, and the volatility of the current market. This helps their customers, in turn, receive some pricing stability.

Is it better to contract for bulk olive oil, or to ride the market?

Blog62-Contract-SigningMany businesses wonder if it’s better to contract in a set rate for bulk olive oil for a period of time, or if it’s better to ride the market fluctuations. In all honesty, this is a personal choice that each business will have to make for themselves.

The theory is, if you’ve locked in a price and the cost of bulk olive oil goes up, your company will save thousands of dollars. But just like any gamble, if the prices go down, your company would have had the opportunity to spend less. Either way you go, you could loose some or you could save some.

The best bet is to have a supplier that understands what’s going on in the international olive oil market, and that has insight that can help guide you towards a smart decision.

 

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Topics: Prices & Saving Money, Harvest/Commodity Market

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