December 27, 2005

Dear Tomato Grower:

During the past 3 weeks we’ve seen activity focused in the north and south. It is gratifying that 13 new members from both regions have joined the CTGA during the last 2 weeks and total of 19 in the past 3 months.

2006 Pricing Activity – Focus on the North: 

Meetings over the past 90 days started with 5 Colusa growers and grew to 40+ with Colusa, Solano, Sutter, and Yolo growers present. The meetings addressed the following:

 Market Conditions:

• Processors will be challenged to meet pack plans

o       CTGA estimates 2006 crop at 10.6 Million vs. 11.2 Million demand

o       Some processors indicate that the demand figure is light

o       Acreage in both Yolo and Colusa will be 15% below the 5 yr average

• Processors will not be able to by-pass Northern Growers with cheaper tons from other areas

o       The only surplus area is the South and processors in Merced, San Joaquin and Stanislaus need those tons

o       Driver shortage and high fuel costs will sharply limit processors ability to haul from greater distances 

·        Alternative crops

o       Nut trees, alfalfa, sunflowers provide competitive alternatives for tomato ground 

·        Threats to meeting price targets are:

o       Setting a price that isn’t supported within the region

o       Growers not working together

o       Making decisions based on poor market information

 Costs:  Growers have done a thorough job analyzing 2005 costs and estimating for 2006. Part of the process is making a realistic estimate of yield and risk. The following spreadsheet came from a Yolo grower.

 * Yolo county 5 yr average paid yield is 36/tons per acre 

Terms of Trade: Other concerns for Northern Growers which is shared by many growers across the state are the terms of trade, especially for cannery harvested tonnage. The suggested changes are: 

1. Canner Harvest:

o       Green: 1 X Green Percentage up to 2% - no deduction over 2%

o       MOT:      1 X MOT >0.5% 

2. Grower Harvest:

o       MOT: 1.2% MOT >0.5% plus 0.8% 

3. Other Changes:

o       Early Season Premiums: $3.00 per ton delivered first 3 weeks harvest

o       Late Season Premiums: $2.50 per ton delivered Sep 1 - 15; $5.00 per ton delivered Sep 16 – 30; $7.50 per ton delivered Oct 1 to harvest conclusion

o       Contract volume based on net paid tons, not delivered

o       Payment: Net 10 days

o       Solids: Discounts not to exceed $3.00 per ton.  

Grower Resolve: No seed will be planted or sent to greenhouse until a memorandum of understanding is agreed upon and signed. 

Processor Reaction: Campbell’s, Morning Star and SK have all offered $58 (including harvest expense) and they’ve been turned down. Processor rationale: 

1. Desire to have a uniform price. Northern growers understand this, but they cannot take the financial risk by agreeing to this price.

2. If the north holds for a higher price processors may be forced to close. Northern growers appreciate the processors’ concern, but growers can’t continue to grow tomatoes at a loss.

3. Processors will truck tomatoes from cheaper areas. Given supply and demand, high energy cost, and driver shortage this is a stretch.

4. Northern processors will be uncompetitive: This concern is shared by growers, but this situation is not fueled by greed. It’s a function making a business decision that will allow growers to achieve an adequate return.

5. Processors’ customers won’t accept the higher tomato price: No one likes a price increase and paste customers have benefited from low pricing for 5 years.

6. Growers are bluffing: There are enough growers willing to walk away from tomatoes if they don’t get their price.

Activities in the South:  

• Pricing in Fresno County has moved from $57.00 with a $9.00 harvest fee to $58 with harvest rates at $9.00 – $10.50. Growers are not excited by these proposals, but they are optimistic about their yield potential. Some contracts have no solids program.
• The majority of the acreage is still uncommitted with several processors on the sidelines presumably hoping the price will slip.
• Some branded processors floated $55 to $56 deals hoping that growers would accept. To our knowledge this has not happened.
• Merced County growers are looking for $58 - $60 and several are willing to switch from transplants to direct seed so they can delay making any commitment.
• San Joaquin growers are keenly following the activities in the north because they know several processors believe that San Joaquin will chase below market contracts.

Comment:  

• The North is showing the value of working together. They will address not only base price, but other issues that affect the bottom line. Other regions would benefit from this approach.

Annual Meeting: 

Please join us at CTGA’s 59^th Annual Membership Meeting and Third Exhibit to be held at the Doubletree Hotel in Modesto on Wednesday, January 25^th, 2006, 8:00 – 2:00 P.M.  Speakers include: Reuben Peterson, Chris Rufer, Dave Withycombe, and Rodger Wasson. 

All the best for the holidays and thank you for all your support during 2005 

Ross Siragusa

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