LA Private

Cobram Estate Olives having a bit each-way

An apparent paradox was reported yesterday by the listed olives group Cobram Estates (ASX:CBO).

The company reckons its 2023 crop will be both higher (than the most recent crop), and lower (than a normal crop).

Sounds a bit Zen, but from a trading update and presentation to a Sydney investment conference (which also revealed solid retail sales at the moment), that duality is believable.

As Cobram explained it, with 60% of the current crop harvested there’s going to be a significant shortfall compared to 2021, but a significantly more olives than was harvested in 2022.

“Based on the current trends and the areas and varieties harvested, it is expected that the combined production of both groves would be between 12.6 million and 13.2 million litres.

“This compares to last year’s harvest of 9.5 million litres (our last ‘off-year’) and 16.1 million litres (our last ‘on-year’ in 2021).

According to Cobram, olive trees naturally bear fruit in two-year (biennial) cycles, with a lower yielding crop one year (e.g. FY2022) followed by a higher yielding crop the next (e.g. FY2023). This is a known and expected two-year cycle that Cobram says it easily manages.

So the bottom line is that the 2023 harvest will be lower than the last two years, but because there will be more than last year, that will end up a good thing for olive buyers and consumers of olive oil.

“The expected crop is 20% to 25% below our initial forecast and as previously announced this is largely driven by the unusually cold and shorter growing season delivering lower-than-average oil content in the fruit combined with smaller fruit size.,” The company explained.

It made it clear that the current harvest (which only has a couple of weeks to go) won’t see Australia run short and the 2024 crop is looking promising here, while in California where it also operates, Cobram is confident about the harvest later this year.

The shares ended down 0.8% at $1.20.

Cobram said that with its third party oil products, it “will have sufficient supply to meet the requirements of the packaged goods sales plan over the next 12 months.”

“The new mill at Boort has been successfully commissioned on time and, pleasingly, it has broken the historical site daily record of fruit processed. Subject to weather conditions, we expect to finish harvest by the end of June,” the company said.

Cobram says the lighter than expected crop combined with good growing conditions during summer and “above average annual rainfall determined pleasing levels of vegetative growth and productive potential across our farms. This is expected to increase the 2024 cropping potential, subject to a return to more normal weather conditions.”

In California the company is looking to harvest its olives between October and November, with the groves having just been through the peak flowering period.

“Flowering was favourable, and we are therefore hopeful of a good harvest in November, but of course subject to weather conditions between now and then.

“Further, significant rain and snowfall during the Northern Hemisphere Winter and Spring provided welcome relief for Californian water users in general, including the irrigation district where our groves are located, resulting in material water allocations for the growing season.”

Significantly, Cobram also revealed in its presentation to the conference on Wednesday that its retail sales performance hasn’t been hit by the downturn in consumer spending.

“Sales for the March 2023 quarter were strong, with packaged goods sales higher than the September and December 2022 quarters in both Australia and the USA,” Cobram revealed.

“The Company’s sales outlook remains positive for the last quarter of FY23.”

Offshore and the impact of a long drought across the southern European and north African growing zones continue to pressure imports into Australia.

Cobram said “Imported olive oil products remain under increased margin pressure with European olive oil supply well down and bulk prices at 20-year highs. This has resulted in material retail price increases for imported olive oils in Australia, the USA, and Europe.”