CTGA Tomato Bulletin - Aug 15 2007

August 15, 2007

Dear Tomato Grower:

In the current Tomato Bulletin:

Yields continue to exceed contract resulting in more acres left unharvested
Weekly volume just shy of 1 million tons making a 12 million ton crop likely
Impact of 12 million ton crop would be muted
Visit to China draws conclusion that it will not supplant California anytime soon
Ingomar Packing adds a new grower partner

Continued Mild Weather Prolongs Above Contract Yields:

Yields continue to surprise growers and processor alike. Some are beginning to comment that 2007 is better than 2004.
Although many processors have fallen behind the mild weather has created excellent conditions for extended field storage.
Some reports of mold caused by early morning dew, but its more isolated than the norm.
The surplus fruit market is near non-existent due to a lack of processing capacity
Some processors anticipate yields falling off over the next 2 weeks, but not enough to be below contract

PTAB Projects 982,000 tons to be processed this week.

2007 running 8% ahead the previous 8 yr average and tracking close to 1999. USDA will issue its revised crop estimate at the end of the month – expect a 12 in front of it.

Impact of 12 million ton crop mainly phsycological:

Barring a major weather event, 2007 should exceed 12 million tons. So does this mean we will see a repeat of the price collapse seen in the aftermath of the 1999 crop? This is highly unlikely for the following reasons:

· Demand is strong for California tomato products. Processors are receiving inquiries from long term customers requesting a volume increase on existing contracts

· European and Chinese processors expect local crops to be off 5 – 10% creating export opportunities, especially for cold break

· The Midwest crop likely to be off due to very hot and dry weather – only 1/3 of the Midwest acreage is irrigated

· CA acreage south of the Delta very likely to be cut in ’08 due to tight water at the same time processing capacity in the southern San Joaquin Valley will be increasing

· Unlike 1999, growers have several competitive alternative crops

Bottom line: Any excess inventories resulting from a 12 million ton crop would be short lived.

China Study Trip:

Per the June 15 Tomato Bulletin the World Processing Tomato Council in conjunction with China Canned Food Industry and COFCO/Tunhe (China’s largest processor) organized a study tour which included a conference in Beijing followed by a tour of tomato fields and processing plants in Xianjing Province. The takeaways were the following:

The 2007 production estimate is 5,500,000 ST vs. an original estimate of 5,850,000 ST. The reduction is a result of flooding in Inner Mongolia, which produces 20% of the crop.
China has 66 processing plants with a claimed production capacity of 144,000 ST/day, which is roughly similar to California
Tomatoes range in cost from $42/ton in Xianjiang to $64 in Inner Mongolia
China doesn’t have the fruit production capacity to meet capacity for the following reasons:

Tomatoes grown in Xianjiang Province (80% of total) have a very short growing season due to weather risk associated with the altitude – 3,000 feet + and northern latitude
Despite widespread usage of drip irrigation yields are <27/ton per acre
85% of the fruit is hand harvested via 3 to 4 pickings. The hand harvesting damages the plants, which increase defects.
Transporting the fruit from the field to the plant is an enormous challenge and its doubtful that it gets processed within 24 hours as claimed by the industry
Growers have attractive alternatives with cotton, melons, sunflowers and feed grains
Hand harvesters are paid $6.50/day and the industry struggles to find sufficient laborers

China does have the potential to increase production with the use of better farming practices, mechanical harvesting and improved varieties. Heinz has a joint venture with Cofco/Tunhe, and under their management, yields are estimated in the 35 – 50 ton range. It will take, however, a number of years for the industry to fully transition to modern practices. The industry estimate of 7,500,000 tons by 2011 is possible, but a stretch.

Assuming that China reaches their 7.5 million ton goal by 2011, there are strong reasons to believe that the additional production will not be burdensome.

European production will drop because of uncoupling of EU subsidies. The drop may exceed China’s increase
Worldwide demand is projected to increase 1 – 2% per year which in itself will take the Chinese production increase

Chinese processed tomato consumption is a meager 0.2 lb/capita although its fresh demand is among the highest in the world at 55 lb/capita. The challenge is getting the Chinese to see processed tomatoes as something more than paste as an ingredient in ketchup for use in only Western restaurants. The presentation I made in Beijing discussing US, European and Japanese steps to increase demand was well received, however, a lot more work needs to be done.

Ingomar Packing adds a Partner:

Ingomar announced that Del Mar Farms has joined Vaquero Farms and Bennett Farms as a partner in Ingomar Packing. Del Mar is a diversified agribusiness based in Patterson, CA.

Questions or comments please call.

Ross Siragusa, President/CEO

(916) 925-0225