CTGA Tomato Bulletin

October 30, 2007

Dear Tomato Grower:

In the current Tomato Bulletin:

CTGA funded Hale Group survey confirms that growers’ priority statewide is an early contract
2007 crop concludes at 12,081,317 – just slightly over original 2007 contract intentions report
Most processors concerned about large carryout inventories; a bit ironic given production mirrored intentions
Regional grower meetings confirm consensus that ’08 price needs to be higher and changes in some terms of trade
It’s only been 116 days ago since we put ’07 negotiations to bed…we’re back at it.

Steps for Securing an Early Contract

Despite what you might think, contract timing is largely in growers’ control. Over the next few weeks cannery field men will survey their traditional grower base and ask growers to commit acreage for ’08. If you want a better price and an early contract, don’t commit without a firm price.

Why? Try thinking of it from a canner’s perspective:

· The key is lining up acreage that is important to the efficient operation of the cannery:

o Early tonnage to get the plant started – extremely important

o Tonnage close to the plant or with important attributes; peelability, solids, etc

o Late tonnage so cannery fills its pack

o Reliable growers that consistently perform

· If price and timing were important then a grower wouldn’t commit

· Some processors will offer to pay “CTGA Price”, “competitive price”, or “market price”. The problem with these “guarantees”:

o Once the acreage is locked-in, there is no need to quickly settle the price

o Grower leverage is transferred to the processor

o The terms “competitive or market” are a matter of interpretation

o CTGA’s leverage is based on its membership’s collective leverage; if it’s already been transferred, the task becomes much more difficult.

Given that there’ll be fewer tomato acres and plenty of good row crop alternatives, growers should have no concern in placing their acreage.

Another issue that affects the price, terms and timing of contracts are the actions of non-members of the CTGA. Many CTGA members have good relations with non-members, but please remember that they’re affecting grower’s overall return. Why?

· Non-member acreage is typically tied to “CTGA Price”, so they’re not part of the pricing discussion at all.

· For late season growers that don’t think Late Season Premiums are sufficient, talk to the non-member neighbor. If a canner has 50% of its late tonnage lined up without having to negotiate for it, what incentive is there to pay more?

Bottom Line: If you want a better price, don’t make an un-priced commitment and suggest that your non-member neighbor get with the program.

How does 2007 stack up against previous years?

Production Solids Mold Green Color L/U

2007 12,081,000 5.24 2.0 1.0 24.1 1.7

2006 10,104,000 5.33 2.4 2.0 26.4 1.4

2005 9,599,000 5.44 1.7 1.4 25.0 1.6

2004 11,672,000 5.18 1.3 0.9 24.8 2.5

2003 9,251,000 5.32 1.9 1.2 24.9 1.8

2002 11,056,000 5.18 1.5 1.0 24.8 2.1

5 yr Avg 10,336,000 5.29 1.8 1.3 25.2 1.9

Source: PTAB

Processors Concerned About Potentially Big Inventory; Expect Growers to Share the Same

The CTGA Projects 2007/08 Supply and demand as follows:

Carry-In 3,130,000

CA Production 12,081,000

Other US 550,000

Total Supply 15,761,000

Projected Demand 11,500,000

Ending Inventory 4,261,000

No question that a 4,261,000 ton carry-out would be large; 118% the previous 10 yr average.

The processing tomato landscape, however, is changing dramatically which makes this historical comparison less applicable:

· Worldwide demand is increasing at an annual rate of 750,000 – 1,000,000 tons per year

· Europe will come up 700,000 tons short of June 1 estimate; inventories were nil going into this crop year, so they have increased imports sharply

· China, Europe’s biggest supplier, is projected to come up 770,000 tons below it’s June 1 intentions

· No other large producer will pick up the slack

· European decoupling of subsidies plus unreliability of Chinese supply make Europe an attractive long term market

Other issues not to lose sight of for 2008:

Supply: Californian acreage will drop due to water constraints; average yields are likely to be lower.

Although the CTGA grower survey shows a 22% acreage cut, take a 10% cut in acreage for arguments sake and the 5 yr average yield (263,700 acres x 37.7) = 9,941,000

Demand: Californian-processing capacity will increase by an estimated 400,000 tons. Few processors indicate that they’ll be cutting their pack plan so demand will assuredly exceed supply

Take Away: Inventory levels are more concerning in appearance than reality.

Feedback from Regional Growers Meetings

· Growers very concerned about increasing costs

2007 viewed as an exceptional year from a weather perspective and not likely to be repeated anytime soon
Acreage in each region will be cut as a consequence overhead will be higher on a per unit basis
$63/ton in 2008 will at best result in a breakeven and who wants to only breakeven?
Given the attractive crop alternatives, few growers are worried about losing tomato acreage
A final target price has not been determined, but vast majority looking for $70 +

Questions or comments please call (916) 925-0225 or email rdsiragusa@ctga.org