MFAO, based in Spain, is the only market in the world where futures contracts on olive oil can be traded.

The market, which was created four years ago, has been mainly used by olive growers to protect themselves against price swings. Olive oil prices are exceptionally volatile, so both growers and producers have an incentive to use futures in order to hedge against price fluctuations. However, MFAO wants to go further, and it is now planning to attract speculative investment by major financial institutions.

MFAO already counts with two important members trading from their screens: Banco Popular and savings bank La Caixa. Besides, they are in talks with “giants” such as Banco Santander, BBVA and JPMorgan, as well as the London desks of commodities traders.

But whether the big financial players are ready to start trading olive oil futures is still uncertain. Financial institutions demand liquidity, so volume needs to increase dramatically if the market wants to avoid the way of the Spanish citrus fruits futures market, which was abandoned not long after being set up back in 1995.

Spain is the world’s biggest olive oil producer, accounting for 40% of the 2.5 million tonnes produced worldwide every year. Yet, there is little MFAO will be able to do if strong competitors, such as Chicago’s Board of Trade, decide to emulate their initiative before it manages to establish their market.

Link: http://www.mfao.es (the site has an English version).