December 6, 2007

Dear Tomato Growers: 

·        Los Gatos agrees to pay a firm $70 with LSP of $5, $10 & $15. CTGA recommends that LGTP growers accept this offer.

·        SK indicating that will also pay $70 with same LSP levels, but there is discussion on their indicated harvest rate of $11.90, it’s too much.

·        ConAgra and Ingomar float the idea of a sliding scale based on crop size. Since growers don’t determine the overall crop size, the CTGA is not supportive of this approach.

·        Thirty Northern growers meet and reaffirm that they want a minimum of $70 and early growers are discussing not sending seed to the greenhouse until they have an acceptable contract.

• Wheat continues to climb. It may be late, but a number of growers are still converting acres over.
• $70 is not a done deal across the industry, so don’t commit without a firm price.

Los Gatos Tomato Products Proposal: 

·        Base Price   

o       $70.00 

·        Deductions

o       Per the 2007 CTGA Master Agreement 

·        Solids Program

o       LGTP 3 year average 

·        Late Season Premiums:

o       Sep 15-21                                          $  5.00

o       Sep 22-28                                          $10.00

o       Sep 29-End of season                     $15.00

o       LGTP requests that the CTGA to standardize late season premiums being paid by actual delivery versus paper delivery schedule. 

The CTGA Board reviewed the offer and recommended that its LGTP growers accept the offer for the following reasons: 

·        The offer meets key grower conditions; base price and improved late season premiums

·        Growers wanted an agreement prior to December 15.

·        Although not strictly part of the offer, harvest rate indications of approximately $10.50 are acceptable to many growers. 

Was it everything growers wanted? No, but as acres get committed, there is nothing that says the price won’t go above $70. Acres are tight across the state and there won’t be enough to go around.

 SK Pushing to Contract Acres:

 SK is actively approaching growers as it works to nail down its 2008 supplies. Given Boswell’s new plant and reduced acreage due to water concerns SK needs to secure a number of new growers. It has shown a willingness to meet $70 base and the LSP values offered by Los Gatos, but their proposed harvest rate is not acceptable. 

Although the harvest rate is not strictly part of the CTGA master agreement, growers need to get this defined before they commit to grow. Given that harvest is one of the largest cost components for processing tomatoes, 15% +, does it make good business sense leaving it undefined until after concluding an agreement.  

Ingomar and ConAgra float Sliding Scales: 

Concern over the large 2007 crop combined with less than stellar domestic movement prompted Ingomar and ConAgra to float differing sliding scales based on the 2008 crop size. In order to pay $70 the total crop would have to be well below 10.0 million tons. From their perspectives, it makes some sense. 

·        2007 was the 2^nd largest crop on record

·        Another 11.5+ million crop without a large pickup in demand would make fixed price inventories vulnerable to a decline

·        Paste and product buyers fixate on the CLFP inventory reports regardless of who is holding the inventory or whether the inventory is for domestic or export programs 

Having said this, here is the disconnect: 

·        Based on conversations with processors and seed companies processors will be looking for approximately 11.5 million tons in 2008. This doesn’t tie with a concern over inventories.

·        Growers don’t plant spec acres due to the cost and risk. This is especially true in an uncertain water environment.

·        The sliding scale doesn’t address growers cost concerns. Take a look at fertilizer lately…

·        The concern of 2008 being another bumper crop is overrated. Where will the acres come from?  

Bottom line: Processors have greater impact in determining crop size. 

Northern Grower Meeting:

Thirty growers from the Sacramento Valley met on Thursday to discuss their outlook for 2008. 

·        $60 in field or $70 after harvest were considered the minimum that growers would accept. Many growers felt that if acres were not contracted soon, the price would be higher.

·        Similar to previous years, early growers expect an ESP and will hold out to achieve their price objectives.

·        Despite what many people think, many growers will be impacted if there isn’t enough rainfall. Not all growers have wells and growers drawing from Clear Lake have no water allocation at this point.

·        Acreage will be down in the north as compared to 2007, but not as much as the south. 

Despite the late date, Northern growers aren’t willing to sacrifice their price objectives in exchange for an early contract. If price targets aren’t met, they’ll plant something else. 

Wheat Market: 

Following last week’s rain we should start to see a lot of wheat coming up on acreage typically devoted to tomatoes. The chart below explains part of the attraction not mention water usage…

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