Investing in olive oil

MADRID – Spanish entrepreneurs might have created a new kind of investment – olive oil. A Spanish company set up the world’s first olive oil futures market earlier this year and the firm says its long-term aim is to turn the increasingly popular oil into an investment asset. «Technically, it is possible and it is desirable. The thing is that the investment funds’ mentality about olive oil has to change substantially,» Lamberto Samper, director-general of the exchange, told Reuters. «That is the objective, without a doubt. The day that an American fund puts olive oil futures in its portfolio, the job will be done, we can retire,» he said. Trade has been slow in the first few months, partly because the exchange opened at the end of the November-to-February season when growers market their product to bottlers and processors. But officials still see the project as a viable way of bringing stability and transparency to a volatile and traditionally murky market. International commodities giant Cargill, which owns a Spain-based bottling firm, already trades on the exchange. Shareholders in the firm are olive oil bottlers such as SOS Cuetara and financial institutions including Spain’s largest bank, Santander Central Hispano, and a host of rural savings banks. The regional government of Andalusia has a 33 percent holding which it intends to divest and several industrial players have said they want a stake. The firm, known as MFAO, is also considering a capital increase to allow more businesses to become shareholders. Olive crude The product traded is not the stuff sold in delicatessens but an oil that needs further refining. Early pressings yield the virgin and extra virgin oils and later lampante oil is squeezed out. Refined lampante has no flavor or smell and oil from one type of olive is indistinguishable from that of another fruit. To give flavor and fragrance to the product that ends up on the supermarket shelf, bottlers add virgin oil. Spain’s 1-million-ton olive oil production makes it the world’s top producer, followed by Italy and Greece. Italy buys between 300 and 400 million tons of Spanish olive oil a year, much of which it rebrands as Italian and exports, according to market administrator Oscar Lopez Gabarda. MFAO hopes players in Italy will soon start trading on the exchange. Turkish producers have said they are interested but Lopez said foreign players – which he hoped would one day include Tunisians and Greeks – were only likely to join up once volumes improved. Illiquid market? World production of olive oil is around 2.5 million tons a year. That compares with worldwide production of around 7 million tons of coffee, the most traded commodity after oil. MFAO, which charges 5 euros ($6.10) commission on each 1-ton contract, says since the launch six months ago, 10,000 contracts have been traded. Volumes are below budget as the firm said in February it was aiming for turnover of 200,000 tons in the first year. Still, trade is expected to pick up in November, when the olive harvest starts. The aim of the exchange – as with older futures markets like the 150-year-old Chicago Board of Trade – is to allow growers and end-users to guarantee future prices to help them plan ahead and hedge against future risk. Olive oil prices are notoriously volatile. In the year before the exchange opened, cash prices varied from just over 1,750 euros a ton to more than 2,550 euros. The average daily volatility over that period was 2 percent, according to MFAO figures. It is too early to say whether futures have had an impact on the overall market, but prices have swung less dramatically. «Volatility has been reduced, I don’t know if it’s our fault or not. Prices have remained pretty high since we started,» Lopez said. Since the exchange opened, prices have stayed in the 2,300 to 2,700 euro a ton range. Many potential players – including farmers and financial players – still need convincing. A futures market for citrus fruits was set up in Spain in 1995 only to fail a few years later and some wonder if the olive oil market will go the same way. Samper, one-time director-general of that citrus market, said the two are not comparable, mainly because oranges rot and vary in quality while olive oil can be stored and standardized. The critics would be won over, he said. «Our vocation is global.»

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