September 14, 2007

Dear Tomato Grower: 

In the current Tomato Bulletin: 

• Fruit is moving forward while processors still behind creating tricky situation
• Weekly volumes still running at 960,000 plus and likely to remain until last week of September
• Wanger Delta Smelt ruling clouds an already complicated decision making process for growers
• Divergent processor views on ’08, but 1 processor is willing to make water related adjustments
• Med fly quarantine in Dixon impacts several growers and processors

Red, ripe fruit backing up: 

• Fruit scheduled for October harvest is now ready adding to the supply
• Most processors are at least a week late, so mature fruit exceeds capacity by at least a factor of 3.
• More observers joining the “crop won’t hit 12 million” chorus due to concern that fruit won’t hold
• Personally think that the economic incentives to process every ton are vast so if we don’t hit 12 we’ll be awfully close

PTAB Projects 980,000 tons this week. 

• 2007 still keeping pace with previous large crops
• This week’s total likely to fall short of estimate due to plant maintenance in Williams and increasing quality discounts – mold rejects on the rise in the south

Water Outlook More Concerning & Complicated: 

Federal Judge Oliver Wanger’s enforcing the Endangered Species Act has sent shock waves through grower communities south of the Sacramento Delta. Preliminary estimates of the impact are as follows: 

• Pumping will be restricted December – June while smelt activity is monitored
• The State estimates reductions of up to 35%
• The Water Agency, Inc. in Fresno provided the following:

                                          Historical Best Case            Post Wagner Ruling

       Average Rain Fall                55%                                                20 – 45%

       Dry year                                30%                                                10 – 30%     

• Allocations will be at the low end of scale initially
• Weekly adaptive management reports will set the next week’s releases so pumping rates are prone to week to week adjustments
• Allocations will only increase after there are assurances that environmental risks are mitigated
• Its likely that most of a grower’s allocation will come June/July forward
• Expect other areas traditionally water rich to share some of the pain            

What does this mean?    

• Growers with permanent crops will need to cut row crop acreage to assure sufficient water for their trees and vines
• Ground without access to well water likely to be fallowed
• Some growers will opt out of tomatoes in favor of lower water crops like wheat or higher value produce
• Early season tomato growers have to drop direct seed by February 20 in order to make an early July harvest, so they will bet on the worst case scenario

Comments from several Westside Growers on their likely individual plans: 

• Good wells and limited permanent crops: 20 - 30% tomato acreage cut 
• Growers with permanent crop exposure: 50 – 60% cut in tomato acreage
• Worst Case: No tomatoes with growers either looking to save water for other higher value crops or outright water sales

Few crop plans are etched in stone, but to think that there will not be an overall reduction of 20 – 30% in the critical southern growing region is naive. 

Processor response:

 Most processors are focusing on getting through 2007 but a few have ventured ideas: 

• CTGA price plus $400/acre if water allocation <29%; $300/acre if <39%. This is a tricky offer since growers’ final allocation may not be available until well after a grower needs the water.
• Crop is large and most growers will make decent returns, so the price should remain stable
• Inventories will grow; the 2007 price was too high; the price should go down
• The water crisis is overblown and will be settled in court well before the harvest

Some Grower Feedback: 

• 2007 yields are atypical and to bank on ’08 being similar is ’07 delusional
• Chemicals and fuel are sure to increase in addition to labor & water
• Alfalfa, corn, safflower and wheat are all providing competitive per acre competitive returns at much less risk; in some cases less water
• If the 2008 price doesn’t come early and have a “7 in front of it”; look elsewhere

2008 will be very interesting. 

Solano Med Fly Quarantine: 

9 Med flies have been trapped and 1 larvae discovered in a peach in the Dixon area which forced the quarantine of 114 square miles right in the middle of tomato and pepper harvest.

• Starting Thursday, USDA started tagging loads and stopping harvesters. This came out-of-the- blue with no notice to the county commissioner’s office.
• Campbell’s worked closely with USDA and CDFA to allow harvest to continue for loads destined for Dixon. They also swapped loads with Morning Star and PCP to lessen the impact.
• Big concern from USDA/CDFA perspective is fruit from the affected area causing an outbreak elsewhere – this will cause reduced load size and possible tarping.
• CDFA is working with each processor to develop a protocol on fruit handling with particular scrutiny on how they are processing waste.
• Quarantine area will be in place through August 2008, which may cause processors to back off the area next year.

Other News:

• Tomato value for 2008 insurance set at $63. This is a result of a concerted effort by CTGA and Dennis Cardoza’s office to get the RMA to stop using a 10 yr average. $63 may not be perfect, but it’s certainly an improvement.

Questions or comments – please call Ross Siragusa, President/CEO 916-925-0225.

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