|
Dear
Tomato Grower:
2005
Crop:
PTAB
estimates that 9.1 million tons will be processed by the end of this week,
but this seems optimistic as canneries struggle to find enough ripe fruit.
The crop isn’t likely to reach 9.5 million by the end of harvest.
Grower
Discussions:
Grower
meetings occurred in Colusa, Davis, Firebaugh, Five Points, Westley and
Woodland. Here’s a recap:
The
North:
Growers
in the north reviewed their costs and were stunned to find the following per
acre increases for the period covering 2001 - 2005:
·
Diesel
$75.00
·
Seed $34.00
·
Rent $72.00
·
Fertilizer $75.00
·
Chemicals
$50.00
·
Total
$306.00
·
Cost per ton $7.75 based on
Colusa’s 39.6 yield
·
Cost per ton $8.50 based on
Yolo’s 36 yield
Increases exclude
water, labor, proposed seed increases.
Given the risk,
northern growers feel that a minimum profit contribution should be $200 per
acre.
The north’s target
price is $62.50
At this stage, the
majority of acres in Colusa and Yolo support this strategy. Most growers are
reducing tomato acres as they increase alfalfa, sunflowers and permanent
crops regardless of the outcome on tomatoes.
Note - $62.50 won’t
bring back low yielding growers that previously exited.
The
South:
Grower reaction to the
northern proposal is mixed:
- A number of large
growers support the northern position. Their reasons:
- 2005 showed that
the south isn’t immune to weather related problems which sharply reduced
yields
- The cost
situation in the south is no different than the north and, if anything,
it can be higher due to water allocation
- Better
alternatives exist in fresh market tomatoes, lettuce, pima and permanent
crops. Onion and garlic returns are improving.
- Growers need to
be compensated for risk and get an adequate return on their assets
·
Some other growers are
concerned about the northern approach because:
- Fear of creating
the “hangover” that existed in 2000 which was followed by 5 marginal
years
- Concern that
processors will not be able to pass on the increases which will
undermine an already weak industry
- Belief that a
price in the mid 50’s is a fair price for tomatoes
- No southern grower
believes that their tomatoes are worth less than northern tomatoes, but
some are willing to sell at a lower price
So, is the northern
position excessive and are the concerns expressed by some southern growers
valid?
Do
we have the makings of another 1999?
- The conditions have
changed greatly
- $58.50 per ton
adjusted for inflation equates to $69.00
- The U.S. is more
competitive due to the dollar being 27% lower
- Growers have
attractive alternative crops and are not fighting each other for a
contract
- Prices will not
collapse in ’07 because growers are not in the financial position to
weather losses in order to stay in the tomato business
Can processors pass on
an increased tomato cost?
- Paste manufacturers
have already indicated that paste prices will be at least $0.33 per lb
next year. This represents a $0.05 – 0.06/lb increase
- Paste customers
recognize that grower and processing costs are sharply higher
- A higher finished
product cost will face resistance from the final consumers and retailers,
but tomatoes won’t be alone
- Offshore competition
is not likely to be a major threat because of the weak dollar, tighter
worldwide inventories and different quality standards
Are northern tomatoes
worth more than southern tomatoes?
·
Strictly from a quality
perspective southern tomatoes are equal if not better than northern tomatoes
due to higher solids and less incidence of yellow shoulder
·
Average yields in Colusa
county are actually higher than Fresno – 39.6 vs. 38.4 – Colusa’s yields are
more consistent
·
Costs are not substantially
different
·
Northern growers must value
their tomatoes more
The Processors
Position:
- Most canneries will
need more tomato acres in 2006
- Canners recognize
the need to increase prices
- Most openly talk
about a $55 price in 2006
- There is concern
that too high a price will create an opportunity for brokers to profit
with growers seeing little of the benefit
- Concern also
expressed about tight working capital and their ability to finance higher
priced fruit on top of other cost increases
Bottom line:
More discussions need
to take place, but please consider the following:
- If growers do
nothing they will get $55
- At $55 canners will
not even replace the 2005 acreage let alone increase it
- The majority of
northern growers are willing to work together to achieve a fair price that
is supported by actual cost increases
- The south can
achieve a better price if it’s willing to work for it
- This isn’t another
1999
Questions or comments –
please call (209) 478-1761 or e-mail
rdsiragusa@ctga.org
Ross
Siragusa |
