`Olive Oil Futures Market Notches Second Profitable Year

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Olive Oil Futures Market Notches Second Profitable Year

Feb. 6, 2014
By Julie Butler

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The decade-old Olive Oil Futures Mar­ket made its sec­ond profit ever — nearly €43,800 ($59,260) — last year, largely thanks to increased price volatil­ity.

Nearly 111,000 con­tracts were traded in the mar­ket (MFAO for its ini­tials in Span­ish), up 13,000 on 2012 and 34,000 on 2011.

Manuel León, pres­i­dent of the Jaén-based mar­ket, told Olive Oil Times higher price volatil­ity last sea­son saw an increase in MFAO clients and trad­ing as peo­ple sought to hedge against ex-mill price changes.

Low stocks and prospect of small Span­ish har­vest fueled trade

Trade increased since July 2012 amid the prospect of the then com­ing Span­ish har­vest being reduced and caus­ing price volatil­ity, he said. Other big fac­tors were the uncer­tainty about the ade­quacy of olive oil stocks, declin­ing domes­tic demand (for the first time dur­ing the finan­cial cri­sis) and also a lower vol­ume of exports from Spain,” León said.

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Our clients have used the mar­ket to help elim­i­nate pric­ing risk and to be able to buy and sell with secu­rity and the guar­an­tee of adher­ence to deals that we pro­vide for the olive oil sec­tor,” he said.

Need for greater liq­uid­ity

In Novem­ber, Deoleo CEO Jaime Carbó said the olive oil giant tended not to use the MFAO, because there is not enough liq­uid­ity in it,” instead lock­ing in con­tracts to pro­vide phys­i­cal hedg­ing.

Asked his response, León said last year con­tracts worth €265 mil­lion ($360m) were nego­ti­ated in the MFAO, rep­re­sent­ing 18 per­cent of Span­ish olive oil pro­duc­tion that sea­son. It is true our aim is to achieve greater mar­ket pen­e­tra­tion, increas­ing trad­ing vol­umes and thus liq­uid­ity.” The MFAO was founded with the objec­tive of being a use­ful tool for the olive oil sec­tor, and to improve its client ser­vice and mar­ket share every year. It also pro­vided an impor­tant ser­vice as a price obser­va­tory, he said.

The only mar­ket in the world where futures con­tracts on olive oil can be traded, the MFAO opened in Feb­ru­ary 2004 and made its first profit, €116,000, in 2010, but 2011’s flat­line prices — reduc­ing the need for buy­ers or sell­ers to hedge against price swings — sent it back into the red with a €300,000 loss, fol­lowed by a €213,000 deficit in 2012.

MFAO con­vert­ing into a mul­ti­lat­eral trad­ing sys­tem

Last year it announced that this Sep­tem­ber it will cease oper­at­ing as a sec­ondary mar­ket and instead be a mul­ti­lat­eral trad­ing sys­tem (known in the United States as an alter­na­tive trad­ing sys­tem). The MFAO said tighter Euro­pean Union reg­u­la­tions on sec­ondary mar­kets — aimed at safe­guard­ing sta­bil­ity in finan­cial mar­kets in the wake of the finan­cial cri­sis — had imposed var­i­ous cap­i­tal and other require­ments that largely exceeded its means and prob­a­bly also its needs.”


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