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November 16, 2007 Dear Tomato Growers: · More than 70 growers meet at Harris Ranch for a statewide growers meeting. · Del Monte offers $63 with a $200 Westlands only water supplement or $64 with no water protection · CTGA sends 2008 Tomato Proposals to Processors
Harris Ranch Meeting: 72 growers representing areas as far north as Williams and as far south as Huron met for lunch and discussed the 2008 outlook. The following are some takeaways: · Strong support for a min $70 and improved late season premiums. · Water situation in south is very serious. The best-case scenario is a 35% allocation, <1 AF, which will be distributed piecemeal. Unlike 2007, there is virtually no carryover for tomatoes. · Many Westland’s growers will insist on a water supplement otherwise they will pursue lower water alternatives, safflower for example which uses 1.5AF vs. 2.6 AF for tomatoes · Oilseeds market is going nuts with safflower now quoted at $545/ton delivered. On drip, safflower can yield 2 tons/acre with $450/ton fully loaded costs plus the opportunity to save or sell the water. · CTGA estimate of an acreage reduction 10 – 20% was supported by those in attendance, although some felt the cut would be greater. One northern grower mentioned that in ’07 he grew 400 acres of wheat whereas he’s already planted 2700 acres for ’08 – this didn’t come out of his alfalfa…A Fresno grower cut 2000+ tomato acres in order to focus on melons. · Growers recognize that 2008 beginning inventory will be high, but the combination of water and alternative crops will take care of it. The idea that $70 will create another 12 million ton crop has no foundation. Del Monte Offer: Del Monte offered $63.00 with a $200/acre water supplement if the water allocation is below 29% on June 1 or $64 with no water supplement. Late season premiums unchanged at $5, $7 & $10. The CTGA Board appreciated Del Monte’s willingness to put something on the table, but our position is reflected in the following offer: 2008 Offer: Based on grower feedback at the meeting the CTGA Board approved the following offer to all processors: Option A: · Base Price: $70 · Early Season Premium $ 3 1st three weeks cannery harvest · Late Season Premium: $7.50 Sep 15 $12.50 Sep 22 $20.00 Sep 29 · CTGA reserves the right to represent growers on regional issues including water supplements and harvest rates. Option B: Term Contract – by mutual agreement between CTGA Member and Processor Year 1: Same as Option A Year 2: CTGA and Processor to exchange initial offers by November 15, 2008 and final offers by December 15, 2008. If no agreement is reached, the final price will be settled through binding arbitration. The goal of both proposals is to address grower’s top concern, which is obtaining a firm priced contract before committing seed. The goal of the term is to provide both grower and processor continuity while providing a mechanism for price discovery based on objective data. So how did we arrive at $70? Please see the following sections on alternatives and cost. Alternatives: · Wheat: $220/ton X 3 tons = $660 vs. $425 cost 55% ROI plus low water utilization · Corn: $170/ton X 6 tons = $1020 vs. $850cost 20% ROI plus good rotation for drip · Alfalfa: $180 X 7.5 tons = $1350 vs. $1000 cost 35% ROI plus good cash flow with 6 cuttings · Safflower: $500 X 1.5 tons = $750 vs. $450 cost 67% ROI with little risk or work and assumes no water revenue All earning $170 - $300/acre with lower risk 2007 Costs: Land Prep $100 Overhead Cultivation 90 Seed 85 Rent $200 Transplanting 140 Other 200 Greenhouse 195 Interest 75 Growing 95 Irrigation 350 Total Cost $2325* Fertilizer 230 Chemical 200 Harvest 365 Total Direct $1850 * Based on Northern / Southern grower input & UCCE Sacramento Valley Processor Tomato Cost study 2008 Cost Estimate: What’s happened or likely to happen with just a couple key items: · Diesel - increase $0.60/gal in past 60 days · UN32 - $330 in ’07; projected $400 · Water – Due to reduced allocation district water $100/AF; greater dependence on wells @ $125/AF & supplemental water @ $???/AF, if available · Labor – Increase in minimum wage & concern about availability · Transplanting costs likely to climb If you assume only a 5% increase = $2440/acre So what’s a fair price? · Tomato Cost: $2440/acre · Margin: $ 200/acre · State 5 yr Average Yield: 37.7 tons/acre · Price: $70.03 · ROI 8.2% Based on cost and alternative crops, anything below $70 doesn’t make sense. Once risk is added to the picture, growers need protection especially in higher risk delivery positions. Early Season Premium (ESP): Early tomatoes carry greater risk due to weather and costs associated with stand establishment. This position also typically suffers from lower yields. Lastly, this position is highly attractive to processors who want get their pack started at the earliest date. Northern growers received an ESP for the past several years and Campbell’s paid it statewide. $3.00 matches Campbell’s ESP. Late Season Premiums (LSP): During the past 3 years growers late season yields have been negatively affected by weather and delayed harvest. Based on grower input, costs and yields are as follows: Thru Sep 14 Proposed LSP · 38.6 paid tons per acre X $70 = $2702 Sep 15 – 21 (5% yield loss) · 36.7 paid tons per acre X $70 = $2567 Revenue Loss $ 135 Additional Costs $ 150 Revenue Loss $135 + Cost $150 / 36.7 yield = $7.77 $7.50 Sep 22 – 28 (10% yield loss) · 34.7 paid tons per acre X $70 = $2432 · Revenue Loss $ 270 · Additional Costs $ 170 Revenue Loss $270 + Cost 170 / 34.7 yield = $12.68 $12.50 Sept 29 forward (20% yield loss) · 30.9 paid tons per acre X $70 = $2162 · Revenue Loss $ 540 · Additional Costs $ 190 Revenue Loss $540 + $190 / 30.9 yield $23.62 $20.00 The proposed 2008 LSP go a long way to reducing grower risk, but growing late is always going to be a tricky proposition. Questions or comments please call 916-925-0225 or email Ross Siragusa at rdsiragusa@sbcglobal.net
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