As reported early January, Chinese Mandarin Orange packers finished production early this year because of a shorter than usual crop and because of labor shortages.
According to our sources, most processors have packed product for firm orders only, and hardly any packer has surplus inventory for future sales, especially in Foodservice can sizes. U.S. importers that didn’t cover their requirements for the entire season are finding out now that the prices are up by about 10%.
We expect the mandarin orange market to remain firm throughout the year.
We have to get used to the “abnormal” being the new “normal” and this applies to the Spanish olive crop again. Whether the unusual crop results may be attributed to extreme weather conditions or to the nature of olives we won’t know; one thing is sure that the 2016 harvest didn’t turn out to be as it had been predicted just a few months before all olives were collected.
We were hearing about a “fantastic” crop from growers and processors until September. Then the reports started changing: first it was the drought over the summer months that seemed to affect the overall tonnage; then it was the rain in October that was supposed to help the yield as the fruit absorbed more water and grew larger. However, as we understood the rain came too late for certain varieties and a lot of the “shriveled” olives didn’t recover. Large size olives grew larger that resulted in a good crop of the Queen (Gordal) variety but the Hojiblanca variety that’s used for both olive oil and ripe olives came in quite short, so did the Manzanilla variety that’s used for green table olives. Given the short crop we can expect the ripe olive market to be quite firm throughout the year.
The growing season of Kalamata olives in Greece is similar to that of the various olive varieties in Spain but the Kalamata olives are left on the tree much longer to ripen; Kalamata olives aren’t going to change color during fermentation and they must reach their desirable purple color on the tree. Just like for Spanish olives, we expected a good crop until about August when we started hearing about the drought in Greece and some fruit fly that caused considerable damage to the crop. Growers were hoping that the yield would improve when rains arrived in the fall but, unfortunately, this wasn’t the case. By the time they finished the harvest in December, they reported an overall shortage of about 30% compared to 2015. There was very little carryover from 2015 and prices started to increase sharply in the New Year.
Kalamata olive processors don’t own Kalamata olive orchards; they buy olives from growers that keep their crop in fermentation tanks until they are ready for further processing and they sell the fruit little by little at prevailing market prices. In other words, they can charge what they want as long as they have a taker; the price is set at the time of the transaction. We understand from our suppliers that right now growers are holding the olives and they are not only quoting much higher prices than last year but they are also anticipating even higher prices later because of the short crop and high demand. Some packers think that the price of Kalamata olives may reach levels this year that we haven’t seen in some 15 years.
The current year’s olive crop was affected by low rainfall, which inhibited sizing. Later in the season the fruit flies infested some of the crop, primarily in Italy and Greece, affecting the quality.
The main sources of oil in order of predominance are: Spain, 1.4 mt (million tons), Italy 350 kt (thousand tons), Greece 250 kt, Turkey 120 kt, Tunisia 60kt, Morocco 40 kt.
With the production in Greece and Italy reduced, the packagers (primarily in Italy) are creating a lot of demand from the Spanish suppliers, pushing the market up, perhaps beyond a normal supply & demand balance.
Olive Oil is a highly speculative commodity driven by:
- A few very large companies
- By ‘Speculadores’ which means speculators in Spanish!
These 2 forces unpredictably control the olive oil market. The market remains quite firm now and may remain so until the spring. In the spring, the olive trees begin to flower, just as other flowering trees, which is the first indication of how much fruit the tree will bear during the season, leading to the initial ‘speculation’ on the new season crop.
Mandarin Orange production to finish early in China due to poor crop.
Our buyers have recently traveled to China and visited several mandarin orange packers in Zhejiang province (Ningbo area).
There are several growing areas in China, like Hunan, Hubei, and Zhejiang Provinces. According to packers, the crop in Zhejiang is some 40% shorter than in a regular year, while the crop is decent in the other provinces in terms of volume but poor in quality as fruit is small due to lack of rain. These other growing areas are in the middle of the country and domestic freight from Hunan and Hubei Provinces to ocean ports or to other factories in Zhejiang or Shandong Provinces makes the raw material very expensive.
Also, it may be hard to believe, but factories are having a hard time hiring workers. Processing mandarin orange segments requires a lot of manual labor and it’s a seasonal job. Some large factories pack nothing but mandarin oranges and they are only open for 2-3 months per year, so a temporary and tough job is not very appealing to workers.
China is facing challenges regarding environmental issues. The country is very polluted and the air quality is bad; as we can all see on the news and on the internet. The government is taking tough measures in order to “clean up” the air and the land; these clean-up efforts affect the food processing factories as well: they must contain and clean their waste and that costs a lot on money. Higher fruit prices, rising labor cost and expenses related to environmental clean-up contribute to higher production costs.
On the other hand, China’s largest competition in this business, Spain, is experiencing a good season, with expectations to exceed normal production volume due to strong demand. Chinese mandarins are subject to anti-dumping duties in Europe that can make their product hardly competitive when the crop is abundant in Spain.
The USA remains China’s main export market and even though the cost of production seems to have increased we expect the prices to remain around last year’s levels because of the decreased demand from Europe. Chinese packers traditionally continue processing mandarin oranges through Chinese New Year that falls on January 28th this year but we are hearing that production will be completed by end December or early January in most factories.
Since the spring 2016 report, the market has remained a bit tight. Raw material costs, the barometer for finished product costing, has remained firm after some increases in the 2nd quarter of last year. Prices have fluctuated in a fairly close range since then, but the bigger dilemma has been the landings of the raw material. Processors have been going more hand to mouth to fill orders rather than building a supply of raw material. The lower cost of fuel has helped the fishermen control costs to a small degree, but historical catchings have been low. In the 4th quarter of 2016, higher ocean freight rates have added to the cost. Tuna fish is still a reasonably priced protein and with broad consumer appeal.
Chunk Light Tuna: Pricing is stable, and possible increases are foreseeable in early 2017. Supply could be an issue as well for reasonably priced chunk light tuna.
Tongol Tuna: The Tongol supply is fairly tight, and prices remain very strong. This is the ‘lightest’ meat in the ‘light’ category, which explains its wide appeal. Tongol is less expensive than Albacore with similar appearance. Our Ambrosia® Tongol contains no vegetable broth.
Albacore: Pricing is steady and supply has improved a bit over the summer, but we are not in a comfortable place as far as supply is concerned. The traditional fishing season for Albacore is April/May, so we are hoping for an improvement.
FYI – Tuna is generally caught by larger vessels out at sea and then frozen on board. Smaller vessels then deliver the frozen tuna to land and it is kept frozen until ready for processing. When raw material is plentiful, building up stock is possible.