February 9, 2007

Dear Tomato Grower: 

In the current Tomato Bulletin:

• $63.00 contract at risk despite several major processors willing to support it; two processors state market conditions don’t support $63
• Growers start planting in good faith; probably ill-advised
• Major processor proposes sliding scale contract dependent on final crop; good concept but price points too low
• CTGA Annual meeting was well attended with a lot of support expressed for Tomato Products Wellness Council

$63.00 at Risk: 

• Excellent weather prompted growers in the south and then reluctantly in the north to begin planting despite the lack of a firm contract.
• Planting was an act of good faith after receiving assurance from their processors that they would receive a fair and competitive price; not the smartest idea from a negotiating perspective
• A couple of processors cite the crop intentions report and CLFP movement report as being justification for a lower price. There is something suspect with these arguments:

-          Processors intend to buy more tons than ever and this is negative?

-          Growers price intentions were very well known and processors decided to report contract intentions of 12 million regardless

-          The Dec 1 CLFP reports that demand is off 15%, but no one really believed the report and shipments have picked up sharply after the 1^st of the year

-          The $0.40+ paste price which more than supports $63 plus premiums has been conveniently overlooked in this debate.

• Processors are receiving pushback from paste buyers stating that the tomato price is too high; curiously one major Midwest paste buyer/processor is willing to pay his growers >$10 more but that’s too much for his California sourced paste…having personally sold food ingredients to corporate buyers -  pushback is the norm, not the exception.
• Growers report that bankers won’t offer financing if budgeted aces are 37 tons plus a $63 contract price ($2331/acre). The irony is that the state 5 yr average is 37.2 tons…
• Growers are not blind to the risks of over production but they didn’t drive the intentions process.

If you’re not thoroughly frustrated, growing tomatoes must be a hobby

Sliding Scale Concept: 

A major processor suggested a sliding scale based on crop size. The essence is as follows: 

If California crop size is less than:               8,750,000                  $70

                                                                        9,000,000                  $67

                                                                        9,500,000                  $65

                                                                     10,000,000                   $64

                                                                     10,500,000                   $63

                                                                     11,000,000                   $62

                                                                     11,500,000                   $61

                                                                     12,000,000                   $60

If greater than                                              12,250,000                   $59 

The logic behind the offer is that current market conditions support $63 but only if the crop is less than 10,500,000 tons. If the crop is too large and the paste market falls, processors will be squeezed if they pay $63. If the crop is smaller than 10.5 million, processors margins would widen with the higher paste prices so the tomato price could go higher. 

The proposal has merit except that the price levels are too low which becomes apparent when you project revenue. For purposes of the analysis, the contract intention acreage of 305,000 is used. 

 Assuming break even is $2200 - $2300 per acre, there is very little opportunity to make money.

Given the difficulty in settling on a reasonable price when inventories are tight and the paste market is high one has to wonder what conditions it will take for it to ever happen.

Growers Position:

Feedback that the CTGA has received is that growers still expect a $63 base price statewide.  

The CTGA will be meeting with its members on a regional basis starting next week to discuss the next steps. Obviously there is desire to get a contract settled, but not at < $63  

60^th Annual Meeting Jan 24 – Modesto: 

The CTGA Annual Meeting was well attended with very favorable feedback. The morning session with the Cooperative Extension presentations was full and our exhibitors said they were pleased with the traffic to their booths.  

Lunch presentations included: 

Dr. Neal Van Alfen, UC Davis, addressed the need for the processed tomato industry to support a food science laboratory which will include a processing tomato pilot plant. 

Dr. Chor San Khoo, Campbell Soup; Dr. Larry Hawley, Del Monte Foods; and Dr. Idamarie Laquatra gave presentations on why their respective companies support the Tomato Products Wellness Council. They also explained why this nutritional research program has a very good potential to grow processed tomato demand in the US. 

Jaime Harder, Registered Dietician and freelance author discussed strategies for getting the tomato wellness message out in the market place. 

Lastly, the Wellness Council had a Directors’ Meeting to discuss details for getting the clinical research trials launched. 

Closing Comment: 

Although there is disagreement over tomato pricing, the events surrounding the Annual Meeting show that growers and processors are working together to improve the industry. Hopefully pricing can be resolved shortly and we can get on with the 2007 season. 

Questions or comments please call or attend a regional meeting.

Ross Siragusa

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