Olive Oil Futures Trading Jumps 54 Percent at Jaén’s MFAO
The world’s only olive oil futures market, the MFAO in Jaén, traded 107.3 million kilos of oil in the first six months of this year, 54 percent more than in the same period last year, and for the first time half of its clients are growers, cooperatives and mills rather than financial firms and bottlers. This note covers the numbers, why farmers are suddenly interested in hedging, and what a futures price does and does not tell you.
What happened
MFAO, the Mercado de Futuros del Aceite de Oliva, is a regulated exchange supervised by the Spanish financial authorities and the only market in the world where olive oil futures are traded. Olive Oil Times reported its half-year figures on July 26. In six months the market has already done more than three quarters of the volume it did in the whole of 2009.
Alongside the volume, the number of clients has grown to 242, about 5 percent more than in December, and the average number of contracts traded each day has risen to 873, up from 571. The change in who is trading is the more interesting part. Until now most clients were financial or industrial players and bottlers. Now half are producers, cooperatives and mills, the people who actually own the oil.
The market’s president, Manuel León, credits commercial work with the cooperative and milling sector, and says the state of olive oil prices is pushing producers to look for alternatives to the traditional way of selling. The exchange has also signed agreements with Portuguese and Italian banks, and says it wants to attract speculative money from large financial institutions.
| MFAO, first half of 2010 | Figure |
|---|---|
| Volume traded | 107.3 million kilos, up 54 percent |
| Clients | 242, half of them producers, co-ops and mills |
| Contracts traded per day | 873 on average, up from 571 |
| Average price traded, 2010 | 1.764 euros per kilo |
| Average price traded, 2009 / 2005 | 1.867 euros / 3.278 euros per kilo |
Why growers are hedging now
The price line in that table explains the rest of it. Oil traded on the exchange this year has averaged about ten cents a kilo less than last year, and roughly half what it fetched in 2005. A cooperative that watched two seasons sell below the cost of production has every reason to try locking in a price instead of holding tanks of oil and hoping. When we last looked at this market, in 2007, it was hunting for speculators to provide liquidity. The crisis has brought it the other side of the trade.
The wider picture is not all gloom. Spanish olive oil sales to the United States rose about 17 percent in the first quarter against the same period last year, and Brussels has twice stepped in with private storage aid to take oil off the market. But the arithmetic that troubled growers in earlier years of large crops and lower prices has not changed: more oil, weaker price.
What it means for buyers
- A futures price is a bulk price at origin, not what you pay in a shop.
- Hedging does not make oil cheaper or dearer; it moves the risk around.
- Rising volumes here are a symptom of a nervous market, not a healthy one.
If you want a sense of how far the origin price is from the shelf price, our look at why imported olive oil costs what it does walks through the layers in between.
Hedging sounds sensible until you sit in a cooperative meeting. If the co-op sells forward at 1.80 euros and the price then goes to 2.20, the members who voted for it get blamed all year for the 40 cents they “lost”, even though they were paid what they agreed. That, more than any technical barrier, is why farm cooperatives have been slow to use this market. The ones that do tend to hedge only part of the crop, which is the sane way to do it.