Global Production May Exceed Expectations, but Not Enough to Move Prices

Summary

Spain and Italy have exceeded ini­tial esti­mates for olive oil pro­duc­tion, result­ing in slightly higher yields than expected for the 2023/24 crop year. Despite this increase in pro­duc­tion, ana­lysts warn that these bet­ter har­vests may be the start of a new trend in olive oil prices and eco­nom­ics, with high-qual­ity extra vir­gin olive oil and other mar­ket seg­ments behav­ing dif­fer­ently in response to the chang­ing cli­mate and mar­ket con­di­tions. This shift in the mar­ket may lead to a grow­ing dichotomy between com­mod­ity olive oil and spe­cialty olive oil, with pro­duc­ers need­ing to spe­cial­ize in one seg­ment to thrive in the evolv­ing mar­ket land­scape.

Olive oil pro­duc­tion in Spain and Italy exceeded ini­tial esti­mates, mean­ing that the European Union now expects slightly higher yields than orig­i­nally antic­i­pated in the 2023/24 crop year.

These bet­ter-than-expected har­vests com­bined with a wet win­ter have resulted in a slight reprieve in the olive oil mar­ket, reflected by low­er­ing prices at ori­gin from mid-January’s record highs.

However, ana­lysts warn that the 2022/23 and 2023/24 crop years may be the start of a new trend in olive oil prices and eco­nom­ics, in which high-qual­ity extra vir­gin olive oil and other mar­ket seg­ments begin to behave dif­fer­ently.

According to the Spanish Ministry of Agriculture, Fisheries and Food, olive oil pro­duc­tion reached 845,000 tons. This revised esti­mate marks a ten per­cent increase from the ini­tial fore­cast of 765,362 tons made at the start of the har­vest.

As a result of this adjust­ment, Spain’s olive oil out­put is now expected to sur­pass the pre­vi­ous sea­son’s mod­est achieve­ments by 27 per­cent. Despite these increases, pro­duc­tion vol­umes are antic­i­pated to be approx­i­mately 33 per­cent below the aver­age of the past ten years.

With the addi­tion of 215,000 tons of imports, these quan­ti­ties are deemed suf­fi­cient for local pro­duc­ers to sat­isfy domes­tic olive oil demand, esti­mated at 400,000 tons, and export require­ments, fore­casted at 708,172 tons. By the end of the crop year, olive oil stocks are expected to sta­bi­lize at 200,000 tons.

Italy, the E.U.’s sec­ond-largest olive oil pro­ducer, is also expected to out­per­form its ini­tial pro­jec­tions.

The European Commission’s lat­est data indi­cate that Italian olive oil pro­duc­tion in the cur­rent sea­son will be 330,000 tons.

This esti­mate is 37 per­cent higher than the pre­vi­ous sea­son, almost two per­cent above the aver­age of the last ten years and mar­gin­ally sur­passes the com­mis­sion’s ini­tial pre­dic­tion of 324,000 tons. Italy’s end­ing stocks are pro­jected to remain at 140,000 tons.

Collectively, the E.U.‘s updated fig­ures now show a total pro­duc­tion of 1,488,000 tons for the cur­rent cam­paign. This quan­tity exceeds the 1,392,300 tons of the pre­ced­ing sea­son, yet it remains notably lower than the decade’s aver­age pro­duc­tion of 1,860,000 tons.

Globally, the com­mis­sion now indi­cates that olive oil pro­duc­tion for the 2023/24 crop year is pro­jected to reach 2,490,000 tons.

Estimates pub­lished by the International Olive Council in November fore­casted global pro­duc­tion to reach 2,407,000 tons in 2023/24.

Despite this increase bol­ster­ing olive oil avail­abil­ity after two con­sec­u­tive chal­leng­ing sea­sons, pro­duc­tion remains nearly 21 per­cent below the aver­age of the past decade: 3,065,320 tons.

Slightly higher olive oil avail­abil­ity may not be enough to impact the cur­rent trends of a mar­ket under­go­ing sig­nif­i­cant trans­for­ma­tions.

While prices have fallen slightly from record highs, the sup­ply remains sig­nif­i­cantly below his­tor­i­cal demand.

“Even a slight uptick in yield from Spain may not be suf­fi­cient to address this imbal­ance and sta­bi­lize prices,” Daniel Santini, a finan­cial ana­lyst and founder of Tuscany-based pro­ducer Entimio, told Olive Oil Times.

“The out­look for the upcom­ing 2024/25 crop year will likely play a cru­cial role in deter­min­ing both spot and future prices, as many major buy­ers are hes­i­tant to com­mit to large con­tracts until the har­vest out­look becomes clearer,” he added.

Santini said this would be espe­cially evi­dent for lower-qual­ity extra vir­gin olive oils.

“These have seen sub­stan­tial price increases, with some labels nearly dou­bling in price com­pared to 2023,” he said. Conversely, higher-end prod­ucts have expe­ri­enced more mod­est price hikes, typ­i­cally between five and 15 per­cent.”

Santini remarked how afflu­ent con­sumers ​“may not feel the impact of infla­tion as acutely and con­tinue to pur­chase their pre­ferred olive oil brands.”

At the same time, ​“bud­get-con­scious buy­ers are scal­ing back con­sump­tion, seek­ing pro­mo­tional deals or switch­ing to alter­na­tives such as avo­cado or veg­etable oils.”

“Even within the higher-end mar­ket, there’s a notice­able response to pro­mo­tional activ­i­ties and bun­dled offers, indi­cat­ing a grow­ing empha­sis on obtain­ing value among con­sumers,” Santini said.

In addi­tion, the impact of cli­mate change on olive crops looms over the sec­tor and its prospects.

“Many indus­try experts, myself included, are con­cerned that the effects of cli­mate change on olive oil pro­duc­tion may be evolv­ing into a long-term trend rather than a tem­po­rary set­back,” Santini said.

“While bet­ter years may lie ahead, achiev­ing a return to his­tor­i­cal aver­age pro­duc­tion lev­els may require sub­stan­tial invest­ments in new groves, milling tech­nol­ogy and new infra­struc­ture,” he added.

In a sce­nario where irreg­u­lar rain­fall pat­terns and ris­ing global tem­per­a­tures dic­tate farm­ing choices, Santini noted that ​“only farm­ers with irri­gated orchards and suf­fi­cient water reserves can reli­ably main­tain crop yields and mit­i­gate pro­duc­tion fluc­tu­a­tions.”

“However, such prac­tices remain lim­ited, par­tic­u­larly in regions such as Italy, Spain and other tra­di­tional olive oil-pro­duc­ing areas,” he said.

Additionally, higher tem­per­a­tures dur­ing har­vest, par­tic­u­larly for early-har­vest olive oil, pose sig­nif­i­cant chal­lenges for millers.

“Achieving ​‘cold extrac­tion’ of olive oil now neces­si­tates metic­u­lous tem­per­a­ture con­trol through­out the milling process, a capa­bil­ity still lack­ing among many pro­duc­ers,” Santini said.

“Traditional meth­ods that once suf­ficed, such as rely­ing on cold nights for milling, are no longer ade­quate,” he added.

Santini said the olive oil mar­ket could expe­ri­ence a schism with two seg­ments that fol­low dis­tinct mar­ket trends if cur­rent cli­matic trends become the next nor­mal instead of anom­alies.

“We’re wit­ness­ing a grow­ing dichotomy between ​‘com­mod­ity’ olive oil, which remains sus­cep­ti­ble to price fluc­tu­a­tions and sub­sti­tu­tion by alter­na­tive oils or fats, and ​‘spe­cialty’ olive oil, which com­mands higher prices due to its supe­rior qual­ity and appeal to dis­cern­ing con­sumers,” Santini said.

In the United States, the high­est-qual­ity extra vir­gin olive oils are sold for $50 to $60 (€45 to €55) per 500 mil­li­liters. Santini pre­dicted prices would con­tinue to rise – poten­tially reach­ing $100 (€93) for 500 mil­li­liters – in the next five years.

“Producers will need to spe­cial­ize in either com­mod­ity or spe­cialty pro­duc­tion to thrive in this evolv­ing mar­ket land­scape and avoid being caught in the mid­dle with a prod­uct that fails to offer either value or unique­ness,” he con­cluded.