Last updated on October 28th, 2022 at 10:13 am
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Your private label oils are in constant competition with national brands. Your key to keeping them in the fight is understanding how oil markets work. Market analysis might not be the most exciting thing out there, but a solid basic understanding – and a supply partner that can help with the finer details – can help you manage your costs and pricing.
First, there are two commonly used pricing models in oil sales. One is board and basis pricing, sometimes just called board. This is typically used for commodity oils such as soybean oil (commonly on grocery shelves as vegetable oil) canola oil, or cottonseed oil varieties. Board refers to trading rates for raw materials at the Chicago Mercantile Exchange, formerly the Chicago Board of Trade. Basis refers to the cost of processing, refining and transporting the finished product to the end destination.
The other commonly used model is flat pricing, which applies to non-commodity oils such as corn, peanut, certified organic, olive, safflower and sunflower oils. Flat priced oils are not tied to a public exchange like board and basis oils are, so their pricing is not influenced by market fluctuations in the same way. Flat pricing still factors in basis costs associated with processing, refining and transportation, but without the added complexity of a public exchange, flat pricing corresponds more directly to good old-fashioned supply and demand.
For both board and basis and flat pricing models, there are many factors that can influence pricing. Some of the biggest are geopolitics, weather conditions, and shipping conditions. Let’s look at a few examples to see what’s acting on oil markets now and how that shakes out in pricing.
In geopolitics, the leading story of 2022 has of course been the Russian invasion of Ukraine. Ukraine is historically a major exporter of sunflower seeds for oil, and that trade has naturally been disrupted by Russia’s aggression. This represents a major change in supply for sunflower oil, which, while moderately popular in the U.S., is a leading cooking oil in most of Europe.
In the wake of the Russian invasion, sunflower oil prices have increased dramatically. Furthermore, European buyers have been looking for an affordable replacement, and many have selected extra virgin olive oil – so, even though Ukraine does not produce olive oil, the geopolitical situation there has caused a demand-driven increase in olive oil prices.
Weather conditions, particularly at planting and harvest times, naturally have an impact on supply as well. For example, this year, Canada has been facing a drought that has lead to a lower than usual yield of canola seed, increasing the price of canola oil. Likewise, excessive rain, late or early frosts and increasingly destructive storms can all similarly wreak havoc on the markets.
Shipping conditions, as a factor in both the “basis” of board and basis and in flat pricing costs, operate on their own supply and demand curve, which in recent years has been under plenty of tension. During the pandemic, increased demand for material goods caused huge freight backups at major ports, where there simply weren’t enough trained workers to keep up with increased throughput. Once goods are in the country, they are distributed by truck, where labor shortages continue to plague the industry, or by train, where a strike was only narrowly avoided in September, although the possibility still looms large. Increased shipping times and costs are part of the “new normal” and unlikely to improve any time soon.
This wealth of information about markets is a lot to take in, but it is important to understand how your oils are priced and what factors influence pricing in order to keep them competitive with national brands. Understanding the finer points of the markets is a full-time job, but comprehending the broad strokes can make your job easier. We’ve put together a handy infographic to help distill down this information to just the essentials for you.
