November 28, 2006

Dear Tomato Grower:

In the current Tomato Bulletin:

• 2006 average yield 36.2
• 2006 will result in a loss for most growers despite an $60.60 average full season price (including early and late season premiums)
• Despite tough processing season, most processors are making money and are optimistic about 2007
• 2006 projected supply and demand shows 2^nd lowest carryout in 10 years.
• Time to get serious about 2007

2006 Tomato Harvest – Ugly Season:

• Based on PTAB’s 10,104,000 ton final production number and USDA’s estimated 279,000 harvested acres, the state average yield was 36.2.
• Average dockage was 6.4% vs. 4.4% for previous 5 yr average and the worst in more than 20 yrs.
• The bulk of the discounts were related to green 2% average dock and mold 2.4% vs. 5 yr averages of 1.2% and 1.6% respectively. Please note that there were a number of growers, especially late, that had much higher discounts.
• Despite the poor quality, cannery rejects were surprisingly low at .3% which equals previous 5 yr average.
• Spotted wilt had a major impact in Fresno County cutting field yields 5 – 10 tons/acre where present.

2006 – A Very Expensive Crop: 

It’s safe to say that 2006 was the most expensive crop on record:

• Diesel, seed, labor, fertilizer, interest expense at or near record levels
• Insecticide, fungicide, ethryl applications far exceeding budgets
• Average grower grossed $2194/acre whereas costs were $2250+

 Before growers contemplate agreeing to a 2007 price it’s imperative that they know 2006 fully loaded costs. Based on grower feedback that have been through this exercise, it’s an eye-opener.

 Why is your processor almost smiling?

 Despite the “ugly” year, 2006 was not bad for most processors. Why?

• Large percentage of paste contracts have provisions to pass through higher tomato and natural gas costs. Margins widened on open market contracts.
• Private label canned product market absorbed higher prices and wider margins.
• Combination of higher than average solids, green, and mold plus lower than average limited use provides approximately $2.20/ton benefit.
• Lower throughputs clearly affected plant costs, but 2006 was not as bad as it looks on the surface and certainly far better than projected back in August/September.

 2006 Projected Supply and Demand Compared to Previous 4 yrs:                                   

 Although the 10.1MM ton production surprised most observers the industry should not lose sight of the following:

• 2006 ending inventory will be the lowest since 1998 which was 2,204,000.
• 2006 ending inventory at 20.2% of demand is actually lower than 21.1% in 1998.

 Bottom line – market conditions haven’t changed despite the crop exceeding 10 million.

 2007 Tomato Pricing – Time to Get Serious: 

During the past couple of weeks, the CTGA had meetings with growers in all major regions. The sentiment coming out of these discussions was that growers still want to see a $65 price. The question is whether growers are willing to work for it. 

Before making a decision please consider the following: 

• Understand 2006 costs and recognize that 2007 isn’t likely to be lower.
  • Considering the situation in the Middle East, labor market, and likely increases for seed, transplants, etc., the odds are that they will be higher.

• Instead of budgeting with the “Banker’s Yield”’ look at the true 5 yr average and plug in the sales price. California’s 5 yr average is 37.2 so all growers can’t be 40 ton plus.
• There is no guarantee that 2007’s weather will be any better than 2005 or 2006 so discounts can and are likely to take a huge toll.
• Be willing to work a little to make money. If enough large growers are willing to insist on a specific price, it will happen.

Next Step: 

• CTGA is organizing grower meetings with individual processors. If you’re interested in participating, give us a call.

Tomato Products Wellness Council: 

The first Wellness Council Board Meeting is scheduled for December 13. Directors will review a research proposal and initial funding. 

The Wellness Council will be the focus of our upcoming 2007 CTGA Annual Meeting January 24 in Modesto. The Council’s goals will be addressed in context to consumer trends from 3 branded marketers’ perspectives. Please try to attend since this industry wide effort is a very important step for improving demand which will translate into better margins.   

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

Ross Siragusa

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