CTGA Tomato Bulletin - March 21, 2003

March 21, 2003

Dear Grower:

Morning Star Offer
The California Tomato Growers Association has received an offer from The Morning Star Packing Co. valued by the company at $49.50 per net ton based on last year’s evaluation. The offer has a Base Price of $48.50 and roughly 25¢ each for 1) Early season premium of $2.00 on tonnage delivered from the beginning of season to 7/19, 2) a 1X deduct for .5% MOT, 3) a 1X deduct for Green and 4) Late Season Premiums of $5.00, $7.50 and $10.00 paid on a weekly basis for Scheduled tonnage starting September 14th. However, you may remember that last year the Association proposed Late Season Premiums of $5, $7.50 and $10 paid on a ten-day basis for delivered tonnage, therefore companies that chose to pay on a weekly basis for delivered tonnage received a small credit to the contract. However, a change from Delivered tons to Scheduled tons is currently under discussion by the Association and would require a new standard and consequent new evaluation. Morning Star also intends to incorporate a Soluble Solids Incentive program into the contract.

The Morning Star Co. based the offer on Cost of Production studies conducted by the company that showed that $49.50 would cover direct and fixed costs plus management and overhead, return on capital and some (not specified) return to ownership. They also said that this offer would cover the recent increases in fuel costs. When asked at what yields this analysis was made they responded:

37 tons would cover variable costs
38 tons would cover all costs including return to ownership

The Cost of Production study undertaken by Morning Star was said to include a harvest cost higher than the average cost charged by the company.

U.C. Ag Extension Releases New Cost Studies

The University of California Agricultural Extension has released two new Cost to Produce Processing Tomatoes for the San Joaquin Valley - South, Fresno County for 2002. One study was conducted for Direct Seed and another for Transplanted fields. The bottom line shows that the total cost to produce processing tomatoes in Fresno County is $1,777 per acre for Direct Seed and $1,894 for Transplanted fields. Both studies were based on 40 tons per acre. The problem, of course, is that the three-year average yield for Fresno County is 37.25 tons per acre. Everyone talks about forty-ton yields, but the fact is that raising processing tomatoes is a risky business. Growers should not expect high yields every year. A three-year average takes into consideration the highs & lows and, therefore substantially addresses the RISK FACTOR in determining a fair price.

Of course a lower yield reduces your total cost, by the tons not harvested @ $9.50 per, but the reduced yields increase the break-even price and reduces any returns. For example, the 3 year average yield of 37.25 reduces the total cost of directed seeded fields in Fresno County to $1,750.88, increases the breakeven to $47.00 and reduces the net to $93 per acre. For the Transplanted operation the total cost is reduced to $1,867.88, the break-even increases to $50.00 and the returns are turned upside down at ($24.00) per acre at a $49.50 price. And this does not take into consideration the recent increased costs over and above those used in the 2002 UC study, please read on…

GROWERS’ COSTS TO INCREASE

Tomato growers in California cannot overstate the impact that the rising price of fuel & fertilizer will have on their operations. CTGA has laid out a simple analysis to show the impact of rising fuel & fertilizer prices on the cost of growing processing tomatoes. We used the University of California Cooperative Extension 2002 Sample Costs to Produce Processing Tomatoes – San Joaquin Valley – South (Fresno County) to determine the amount of fuel & fertilizer to produce an acre of processing tomatoes and then compared costs from the study with today’s costs. Applying the three-year average yield of 37.25 tons per acre the analysis shows that it will cost growers $.86 per ton more for fuel and $.51 per ton more for fertilizer to produce one ton of processing tomatoes in 2003 than in 2002.

Fuel & Lube

	Quantity		Cost	Cost	Today's	Today's
Product	/Acre	Unit	/Unit	/Acre	Cost/Unit	Cost

Gas	1.29	gal	$ 1.26	$ 0.95	$ 2.00	$ 2.58
Diesel	48.30	gal	$ 1.26	$ 21.25	$ 1.70	$ 82.11
Lube			$ 16.00	$ 10.00	$ 26.00	$ 26.00

				$ 32.21		$ 110.69

					*$ 0.86*	*Per Ton*

Fertilizer
		Quantity		Cost	Cost	Today's	Today's
Type	Rate/Acre	/Acre	Unit	/Unit	/Acre	Cost/Unit	Cost/Acre
10-34-0	180 lb (15 gal)	180.00	lb	0.12	$ 21.60	0.135	$ 24.30
7-21-0 (Popup)	4 gal/seedline	5.37	gal	3.00	$ 16.11	3.500	$ 18.80
N-Cal Anticrustant	1 gal/treated acin	9.32	gal	1.00	$ 9.32	1.000	$ 9.32
UN-32	153 lb N (40 gal)	153.00	lb n	0.26	$ 39.78	0.350	$ 53.55

					$ 86.81		$ 105.97

						*$ 0.51*	*Per Ton*

In addition, as reported by the Growers Harvesting Committee recently, the California Insurance Commissioner Harry Low approved a 10.5 percent increase in the Pure Premium rates for workers’ compensation effective in March 2003. This increase is on top of a July 2002 mid-year increase of 10.1 percent. The combined effect of the two increases is 22.7 percent compounded rise in the Pure Premium rates since Jan 1, 2002. In one year the workers’ compensation Pure Premium rate for 0171 Field Crops has increased from a rate of 14.09 to 17.15. According to the same Sample Cost Studies noted above the blended (60/40) Labor Cost to grow an acre of processing tomatoes is $197.80. The increased Workers’ Compensation Pure Premium rates will add an additional 16¢ per net ton to grow processing tomatoes in 2003.

The combination of these price increases will add $1.53 per net ton to the cost of growing tomatoes in 2003.

U.C. Ag Extension Cost Studies may be found at http://coststudies.ucdavis.edu

Canner's Intention Confusion?!

	Contracted	Contracted	Total	Apparent
Year	Intentions	Final	Final	Excess
1997	9,600	9,242	9,342	100
1998	10,000	8,846	8,893	47
1999	11,500	11,990	12,239	249
2000	10,100	10,131	10,287	156
2001	8,900	8,564	8,640	76
2002	10,500	10,806	11,056	250

In Thousand Tons

There has been some confusion with the California Agricultural Statistics Service, Canners’ Intentions announcement of January 31^st that stated, “California’s tomato processors indicated they intend to contract approximately 1 percent more processing tomatoes than in 2002 or 10,900,000 tons.” What they are trying say is that the Canners’ Intentions for 2003 of 10.9 million tons is 1 percent more than contracted tons that were harvested in 2002 (10,806,000). First, is this a meaningful comparison? And second, does this mean in 2002 that 300,000 more tons were contracted for after January or that the 300,000 tons were paid the contract price?

I believe that the industry would be better served if we compared apples to apples and stated, for example, “The Canners’ Intentions for 2003 of 10.9 million tons is 3.8% greater that the intentions of 2002.”

Processing Tomato Crop Size

Guesstimator Contest

Mail form by May 28, 2003 to:
California Tomato Growers Association, Inc.
10730 Siskiyou Lane, Stockton, CA 95207
or fax to: (209) 478-9460

Check One: r Grower r Allied Industry Personnel

Name:

Firm:

Address:

Phone:

My estimate of the 2003 California processing tomato
crop size is tons.

John C. Welty
Executive Vice President