January 17, 2007

Dear Tomato Grower:

In the current Tomato Bulletin: 

• 2007 Contract Intentions Report released at 12,000,000 tons, 305,000 acres & 39.3 yield
• CTGA made firm offers to all processors at $63.00
• Corn price attracting a lot of attention at $160/ton

2007 Contract Intentions Report: 

The contract intentions report is the processors’ wish list for the upcoming crop and should be taken with a few pounds of salt for the following reasons: 

• Other than years with burdensome inventories, the industry will always process at their capacity. Current inventories are historically tight so there should be little surprise with an estimate above 11.5 million.
• Few growers are under contract. If alternate crop economics continue to improve tomato acres will be diverted with a $63 price. See the corn commentary below.
• 305,000 acres represents a 9.3% increase over 2006. This will be a significant challenge since acreage north of Hwy 152 is expected to be lower than last year.
• An average of 39.3 paid tons per acre would be the 2^nd highest ever. Arguably with drip irrigation yields should increase, but weather has to cooperate which hasn’t happened three of the past four years.
• Processing capacity in the state dropped since the 1999 season. In order to process 12 million tons both weather and processing plant performance needs to be near perfect.
• The report is rarely accurate as detailed below:

                                          Intention                                          Actual

                                     Tons                Yield                             Tons                 Yield                            

            2006                 11.6                  39.25                            10.1                  36.2

            2005                 10.3                  38.9                                9.6                  36.3

            2004                 11                     37.5                              11.7                  41.6

            2003                 10.9                  38.1                                9.3                  33.9

            2002                 10.5                  36.2                              11.1                  38.1       

The standard deviation on tonnage is 1.1 million and yield is 3.6 tons per acre which shows that it’s not a particularly useful predictive tool. 

CTGA Offers $63 to all Processors:

• Following the signing of southern growers @ $63 and grower meetings across the state, the CTGA offered 2007 tonnage at a $63 base price.
• The offer also included revised late season premiums and some terms of trade. All CTGA members have been sent a copy of the proposal.
• Processor feedback expected shortly.

Corn – a viable alternative to tomatoes: 

Last Friday corn futures were locked limit up due to a USDA report which showed unexpectedly low stocks. The futures market propelled cash prices up to $160/ton FOB ranch.

So how does corn compare to tomatoes on a risk/reward basis? I asked growers in the north, central and south and came up with the following: 

            Corn                 Price $160 X 6 tons per acre       =          $960

                                    Fully loaded cost per acre                       =          $750

                                    Net                                                       =          $210                            

                                    ROI                                                       =          28% 

            Tomatoes          Price $63 X 39.4 tons                 =          $2482

                                    Fully loaded cost per acre                       =          $2250

                                    Net                                                       =          $  232

                                    ROI                                                       =          10%

There’s no doubt that not every grower can or is willing to split beds and plant corn, but based on the feedgrains outlook corn is likely to get even more attractive than less. When factor in risk its no question that corn is more attractive. 

One clear take away from this is that there is no reason to back off $63 for tomatoes; if anything its too low. 

Annual Meeting Jan 24 – Modesto: 

If you’re not planning on attending please reconsider. The Wellness Council will be the focus of our upcoming 2007 CTGA Annual Meeting January 24 in Modesto. The discussion will include Campbell’s, Del Monte and Heinz’ perspectives on consumer trends and why research combined with public relations is so important. Please try to attend since this industry wide effort is a very important step for improving demand which will translate into better margins.   

Hope to see you next week in Modesto 

Ross Siragusa

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