Higher olive oil prices were predicted in the 2014/15 harvest, in contrast to the 2013/14 harvest of last year. Starting in the summer of 2014, producer prices in Spain began to rise. As a result, the global price of olive oil has gone up this year.

For a review of the commodity market from this fall 2014, we’d suggest catching up on the following article, Olive Oil Commodity Market Update 2014/2015 Harvest.

In the meantime, here’s a review of where prices are now and a some suggestions for future planning to keep your cost of goods low.

The following is a review of the 2014 trends in olive oil imports, including the most popular grades and where they’re coming from.

As you’re reading, here’s what directly affects your manufacturing / distribution company:

• Olive oil imports continue to grow, and
• Most imported olive oil is coming from Spain or Italy

Olive oil imports continue to grow

The popularity of olive oil is still on the rise, and has been for over 25 years. With the growth of gourmet retail shops across the US and much more conversation about olive oil quality and origins, consumers are likely to have an increase in demand for olive oil in the future.

Have you heard predictions that your bul oil ingredient price will increase because the commodity market is going up? Hearing this news can be frustrating for purchasing managers, because you have no control over the market. You are, however, still responsible for protecting your business from rising costs. So what can you do?

There is, in fact, something that you can still do to cut your bulk edible oil costs in times like this. It all has to do with the global commodity market, where your oils are coming from and your buying strategy.

A Brief Summary

To read the latest olive oil commodity market update, read Olive Oil Prices And Commodity Market Update: Spring 2015.

Olive oil prices have steadily increased in Spain over the last 4 months. Initially, the slight increases were regarded as normal; prices often go up just before the harvest season as world supply is at it’s lowest. However, prices continued to rise when a 50% drop in production was confirmed for the next harvest season due to drought in Spain.

Production in Tunisia, Greece and Italy is all expected to increase this next season. However, prices are still predicted to be higher than last year because Spain is the overall price driver for the market.  

Want to lock in a contracted rate for for your bulk oil ingredients?  As a purchaser buying raw ingredients for a manufacturing company, this can be a very smart thing to do.  

Signing a price contract can give your company stability on your cost of ingredients, and allow you to stategically plan your budget.  In addition, it can provide you with a bit of cushion if the commodity market unexpectedly goes south.

But, if you lock in your rates at the wrong time, you'll be required to pay more than the market price for oils.  It takes a firm understanding of the market and good help from your suppliers to lock in pricing at the right time.

So in the debate of whether to sign a supply contract or not, the definitive answer is yes, go for it-- but only at the right time.  When is it the right time?

You'll need to ask the right questions and the answer will emerge naturally after that.

Sometimes, you will hear of commodity purchases being made on the "spot market". This term has to do with the commodity market itself, and will relate to the pricing that you receive.

If you haven't dealt much with bulk oil commodities, this term can seem foreign. We will explain, so that you can make smart purchases and understand exactly the pricing that you're getting.

Ever wonder why spot prices are often more expensive than contracted rates?  There's a good reason, and we'll discuss that too.

A comodity is a raw material or primary agricultural product that can be bought and sold.

Commodity items often display little-changing market demand, which does not fluctuate with variations in price. In other words, it's an raw material or ag product that people need, not just want.

Gasoline is an everyday commodity item that everyone has experience with.  The price fluctuates daily, completely outside of your control.  W,hether the price goes up or down, you'll continue to need gas for your car, and since most people don't have a great way to "stock up" you'll end up buying it when your tank runs low-- no matter the cost that day.  

In the food industry, many raw ingredients that manufacturers use are defined as commodity items. Wheat, sugar, soy and canola are all good examples. No matter the price, you still need these raw ingredients for your manufacturing process; there are no substitutes, and you can't create the product without it.

Another defining factor of commodity items is that the price fluctuates often. Depending on the product, prices can change by the minute, hour, day or week.

The 2013/14 Harvest Season in Spain

As mentioned in prior commodity market updates, Spain has had a bumper harvest this last season (October 2013-February 2014), in comparison to the prior harvest season of 2012/13.  Most of us have felt the affects of this already.

In review, Spain had an even better harvest than predicted, with record volumes of olive oil produced (1,752,100 tons in Spain alone). This reflects an increase of 16% in comparison to the prior harvest year of 2012/13.  Spain continues to lead as the world's largest producer of olive oils.

The total global production of for the 2013/14 harvest year was assessed around 3,150,000 tons.

As we speak, predictions for the next harvest are beginning to surface, and olive oil users and producers are on alert.  Keep reading for more info on the next harvest and helpful resources.

The natural and specialty food markets have taken a turn towards using safflower and sunflower oil as their preferred oil ingredient in their products.  These healthier oils are now being used in place of soybean, canola and other mild, light-colored oils.

Why?  With safflower and sunflower oil, you get close to the same benefits of olive oil, without the color or flavor-- plus it comes at a lower price.

Have you noticed this trend?  Go into Whole Foods and look at the back ingredient label of a few of the chip and popcorn bags.  You're bound to find a whole bunch that use high-oleic safflower oil and sunflower oil that is non-GMO.  Or, even more popular right now-- organic sunflower and safflower oil.

If you happen to be a food manufacturer and you use these ingredients, I bet you've noticed a big trend in the last few weeks/months.  These oils are hard to come by right now, and in high demand!  If you're buying on the spot market outside of a contract right now, you may be hard pressed to find your ingredients.

You're probably wondering why this is happening and what's going on!  Good question.  We'll explain what's going on in the market right now.

UDPATE:  Want to see the commodity market update for the 2014-2015 harvest season?  Read the latest here:  Olive Oil Prices And Commodity Market Update: Spring 2015

As discussed in prior commodity market updates, Spain had an even better harvest in 2013/14 than predicted, with record volumes of olive oil produced (1,752,100 tons in Spain alone). This reflects an increase of 16% in comparison to the prior harvest year of 2012/13, which yielded a surprisingly low crop volume and caused an international jump in the price of olive oil.

Imported olive oil versus its domestic counterpart seems to be an ever growing debate in the olive oil industry here in the US.  

Many manufacturers wonder if they should be using a US-grown olive oil, or if they will need to rely on imported olive oil to fulfill their needs.  The answer lies in looking closely at domestic olive oil-- both the wonderful traits of the oil itself and the US olive oil industry as a whole.  

With the rise of gourmet olive oil retailers and the growing concern about oil adulteration, a turn towards domestic sources (read: high quality oil, from trusted suppliers close to home) is a natural one.  But for the manufacturing industry specifically, there are inherent challenges that would emerge by relying on only US sources for oil.

This last spring has been a good time to need olive oil.  Spain had a great harvest this past winter (even better than originally expected), with talk of record production levels.  It looks like production has finally returned to normal after the decrease in 2012/13.  

Prices are lower than they were last year at this time.  However, prices aren't falling quite in line with where they were 2-3 years ago (at the all-time 9 year low), though production is nearing those same levels again.  It could be quite some time before rates reach similar record lows the future.

Olive oil in bulk is a commodity. It’s actually only sort of a commodity.

This means that the price of bulk olive oil changes by the day, and that quality with a particular quality is normally standard across many different suppliers (when you’re buying oil in large bulk volumes). However, there are exceptions to this rule (like premium or super premium Extra Virgin Olive Oils that are made in smaller farms or with particular monovarieties).

Olive oil is a commodity. Well, kind of…

Let’s start at the beginning. I’ll first explain what a commodity is, and how olive oil fits into that. And then… how it doesn’t.

A Commodity Is A Standardized Product

A commodity is a bulk, raw ingredient that is the same no matter where it’s come from. Sugar, wheat and soybean oil are great examples. Across the board, Soybean Oil is Soybean Oil, no matter where it’s come from. Many manufacturers opt not even to put a new Soybean Oil supplier through product testing, because the oil will be the same as what they’re already getting.

There are two key points to understanding why Spain’s olive harvest affects your own olive oil prices. Taking these points as givens will help you understand the complexities of the international commodity market.

Olive Oil Fact #1