August 7, 2006

Dear Tomato Grower:

In the current Tomato Bulletin:

• Growers in Five Points – Huron region support a minimum price of $65 for 2007 but Northern growers feel that it needs to be at least $70
• Revised supply and demand projects lowest carry-out in previous 10 years
• 2006 harvest sharply behind previous 7 years

Five Points – Huron Growers support a minimum of $65 but North says “it’s not enough”:

Major growers in the Five Points – Huron region met this past week to discuss market dynamics and determine a price they can support. This was the 3^rd meeting for the region during the past 6 weeks. Northern growers had their first meeting since late winter. Additional meetings were held with Dos Palos/Firebaugh/Los Banos and Delta/Patterson/Tracy/Westley growers.

The main points from the meetings are as follows: 

• Processors will not get their pack. Projected low carry-out is likely to force volume allocation for customers and imports. (Please see supply & demand later in this report)
• Regardless of 2006 production the industry will need at least as many acres as were contracted in ’06 if not more.
• 2006 weather showed once again the risk of growing tomatoes. Many growers that sold at $57 to $58 in ’06 will lose money. For those that doubt this, do the math:

                        Min $1800 pre-harvest cost + $350 harvest cost = $2,150.00

                  $57.50 x 35 net paid tons                                        = $2,012.50

                  Net                                                                                   ($137.50)

• Current paste market of $0.38 - $0.41/lb converted to in-field tomato pricing equates to
  $67.46 - $72.80 per ton based on the tomato’s historic share of the paste price.
• World wide supply and demand is tight with smaller than anticipated crops in all major Northern Hemisphere growing areas. Most imports do not meet US specifications due to quality & packaging. Growers in other parts of the world have reduced production in response to unsatisfactory pricing. Bottom line – imports are not a major threat to displace acres for 2007.
• Input costs will continue to be very volatile. Just look at natural gas over the past 2 weeks which increased over 40% before settling 25% above the mid July value.
• Mother Nature demonstrated 3 out the past 4 years it can take an excellent crop and turn it into a disappointing yield in a matter of a week. Why else would the state average yield for the past 5 yrs be 36 tons when so many growers say they’re 40 plus tons per acre producers?

• A price of $65 equates to roughly $2,340 per acre revenue for the average grower which creates an opportunity to be profitable, but with costs approaching $2,200 per acre it’s hardly a windfall. The chart below adjusts historical grower per acre revenue to inflation. It’s interesting to note that the average is $2,950 and median $2,700.

Revised Supply and Demand Estimate:

Comment:

• 10,000,000 production is mid point of trade estimates
• 11,200,000 demand reflects the previous 3 yr average and is a 200,000 reduction from 2005 and 600,000 reduction from 2004
• A 2,153,000 ending inventory would be the lowest in 10 yrs.

 2006 Harvest Update (through PTAB’s Aug 5 Projection):

Below is a snapshot of how 2006 stacks up against previous years through 1999.

On a percentage basis, 2006 is 59% of the previous 7 year average and ranks closest to 2001. This slide doesn’t tell the whole story because processing plants’ yields are running an estimated 5% below plan due to high limited use.

Grower yields have been disappointing across the state due to the effects of the recent scorching hot spell. The reduced field yields have been increased by a combination of high limited use and green. Processors report that overall yields are off 5 – 20% in Five Points – Huron region.

Northern harvest finally got underway last week. Reports of higher than normal limited use and green have been reported, but it doesn’t appear as severe as the Westside. Volumes will pick up sharply this week.

Looking forward most processors and growers are concerned about the outlook for September and October delivery periods. Some observers feel that the impact may be severe enough to force processors to run below capacity during the period. Others feel that we’ve seen the worst of the damage from the hot weather.

 Grower Meetings:

• August 14 – Dos Palos/Firebaugh/Los Banos – 10:00 Dos Palos Service Club
• August 16 – Delta/Patterson/Tracy/Westley – 10:00 Westley Hotel
• August 17 – Five Points/Huron – 10:00 Westside Field Station
• Week of August 21 – Northern Growers with time and place to be determined

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