CTGA Tomato Bulletin

August 30, 2006

Dear Tomato Grower:

In the current Tomato Bulletin:

2006 Harvest still lags previous 7 yr pace and weekly volume appears to have peaked
Yields for last half (LH) Sep forward expected to drop sharply due July heat wave
Growers across the state confirm that 2007 price needs to be at least $65
2007 terms of trade need to be improved
CTGA to take a more direct role in ’07 negotiations
CTGA and UC Davis to host tomato industry roundtable

2006 Harvest Update (through PTAB’s Aug 26 Estimate):

Crop trails 7 yr average by 1,400,000 and is at 77.5% of previous 7 yr average.

The harvest appears to have peaked the week ending 8/19 when volume reached 973,000, but it will struggle to reach 900,000 for the week ending 8/26 due to a lack of ripe fruit.

Looking forward, yields are expected to slip as the full impact of the July heat wave is felt. Growers walking their fields comment that the vine looks great, but there is no crown set and in many cases few tomatoes. Some more seasoned observers suggest that we’ll see a repeat of 1988 when harvest ground to a virtual halt in late September.

Several southern processors are considering temporary plant shutdowns in late September to allow for immature fruit to ripen. A lot rides on a warm, dry fall.

Projecting a crop of 10,000,000 tons is becoming increasingly difficult.

2007 needs to be at least $65:

During the past two weeks, the CTGA held follow up meetings with growers in Five Points, Dos Palos, Firebaugh, Westley and Dunnigan. Details were as follows:

The 2006 weather was a wake up call reminding everyone of the risk of growing tomatoes. Three out the last four harvests had weather related problems which raises the question of whether we’re seeing a long term shift in weather patterns.
Most growers will struggle to make money despite the 16% price increase since 2005. This is particularly disappointing since many growers hoped to help recapitalize their businesses after several poor years.
Growers are slowly learning the need to budget based on average yields as opposed to looking at 2004 as a baseline.
The supply and demand will be the tightest in 10 years and processors will need to increase acreage regardless of final production in ‘06.
At $0.38/lb the paste market can easily support a $65 tomato price. Based on grower’s historical share of the paste price, the tomatoes should be worth $67.50.
Although most growers support a minimum of $65, in the north and in Firebaugh growers say it isn’t enough. One Firebaugh grower commented “What’s $65 going to mean next year? One idiot makes the wrong move in the Middle East and we’ll see $100 crude.”
At $65 some growers plan on expanding their acreage, but most do not. Crop rotation plans are set and there is little available tomato ground without making a significant investment in drip.
Processors have been looking to add new growers, but it’s not as big a threat as it used to be. For example, one major agribusiness in the south looked at tomatoes, but concluded that at $65 there was too much risk to justify growing tomatoes. They would, however, have interest in harvesting tomatoes for $9.50.

Terms of Trade:

Beyond the base price there has been a lot of discussion regarding terms of trade. Without a doubt, early and late season premiums top the list of pressing issues.

Early and Late Season Premiums:

Both 2005 and 2006 provide fresh examples of why early and late season premiums on tomatoes are warranted. Quite simply, costs and yield loss risks are higher. The current structure is not uniform and does little to mitigate risk. Just ask Merced County growers who harvested 15 ton crops last year about whether they think the $5.00 late season premium covered their risk.

Another important consideration is the value of early and late tomatoes. Processors need them to fill their pack plans. Bottom line – increased need, costs and risks translate into higher value.

Suggested premiums:

Early Premiums:

$3.00/ton – 1^st three weeks cannery harvest

Late Premiums:

$2.50/ton - week beginning September 9
$5.00/ton - week beginning September 16
$7.50/ton - week beginning September 23
$10.00/ton - week beginning September 30
$15.00/ton - week beginning October 7 thru end of harvest

Green: Processors use green tomatoes and the current discount is not fair. A fairer proposal is as follows: 1 X Green to 4%; 2 X green for percentage > 4%. Green tonnage should not count against contracted volume

Mold: The standard needs to be 1 x mold for all canneries

MOT: The standard needs to be 3 x MOT

There are other issues that growers would like to address, but these will be done on a regional basis.

CTGA Role:

Although some growers enjoyed the freedom of negotiating their own contracts last year, most felt that the CTGA needs to take a more direct role in negotiations. We will approach negotiations on a regional basis representing grower groups.

EPA proposes new Copper application rate:

CTRI proposed to the USDA a limit of 1.7 pounds metallic copper per application, but the EPA proposed cutting it to 0.53 pounds metallic – half of what we really need. CTRI and CTGA will be working with USDA and EPA to understand why the change was proposed and then work to a more reasonable limit.

There are also some rumblings from DPR that the processed tomato industry needs to present how it will limit VOC releases. This is likely to be an issue for the Processed Tomato Foundation.

Tomato Industry Roundtable – Sep 13 & 14:

The CTGA in conjunction with UC Davis is hosting a processed tomato industry roundtable which will address what steps the industry needs to take to present a compelling case to consumers for increased processed tomato consumption. At this meeting, we will have representatives from the following:

Brands: Bolthouse, Campbell’s, ConAgra, Del Monte, Heinz, Kagome, Unilever

Universities: Harvard, Penn State, University of Toronto, UCLA & UC Davis

Representatives from the FDA, Processors and Growers

We are very optimistic that we will see the formation of a processed tomato council that will lead an effort to fund focused clinical trials that will help increase demand. More news in a few weeks…

Questions or comments please call (209) 478-1761.

Ross Siragusa

President/CEO