Despite a record inventory coming out of the 2007 season, California processing tomato growers and processors have already agreed on an 2008 price; a healthy $70 per ton with late season premiums of $5 to $15 per ton, according to California Tomato Growers Association (CTGA) President Ross Siragusa.
This is a far cry from the $50 per ton paid when Don Cameron, Helm, Calif. producer took over the CTGA chairmanship. The health of the industry and the association has improved substantially during Cameron's reign, Siragusa reported at the association's annual meeting in Modesto in late January.
“If you look back on historic trends, membership does have a direct relationship,” Siragusa said. When Cameron took over, only 30 percent of the state's growers were CTGA members. Now the majority of California's processing tomato producers are association members.
“I certainly think that Don's leadership has helped us achieve important goals.”
During the past five years there have been many other changes for the good as well.
“We refocused CTGA strategy, sold the Stockton office, created the Tomato Products Wellness Council, and returned the CTGA to profitability,” Siragusa said.
Incoming CTGA Chairman Bret Ferguson with Ferguson Farming Company in Huron, Calif., inherits the reins of the much healthier association and industry from Cameron. However, processing tomato growers still face tremendous challenges in terms of market dynamics, increasing production costs and competition for acreage from other crops within the state.
Current processing tomato dynamics are somewhat puzzling. “At best it is a complex picture,” Siragusa said. “Production in 2007 was the second largest ever, plus we had mediocre movement which created high inventories.”
The Dec. 1 2007 inventory was at the highest level ever, yet 2008 contract intentions from processors show they want an almost record tonnage this year. Even though the new J.G. Boswell plant near Corcoran, Calif. will increase state production capacity by 400,000 tons, there is concern that inventories will continue to grow and exert downward pressure on future prices.
“Whereas export continues to be a bright spot, sluggish domestic movement is a concern,” Siragusa said. “Despite high inventory, 2008 contract intentions are the second highest ever at 11.8 million tons.”
On the farm, the concerns haven't changed much except to become possibly more troubling over the past year. “Despite current wet weather, the water picture is clouded by conveyance restrictions,” he said. “Fertilizer, seed, labor and water costs are higher, and fuel is very volatile.”
An 11.8 million ton crop in 2008 is not likely because it would take a 41-ton average yield, according to Siragusa. Any kind of weather problems will likely derail a high tonnage crop. Near perfect weather conditions were largely responsible for the only two years growers averaged more than 40 tons per acre. That occurred in 2004 (41.5 tons per acre) and again last season (41.3 tons/A estimated).
Even with more acreage being grown under drip, the higher use of well water and uncertain weather will likely preclude a 41-ton average yield. A more realistic scenario in 2008 is 265,000 acres at an average yield of 40 tons per acre to equal a supply of 10.6 million tons, according to CTGA.
In spite of the challenges facing the industry, the long-term picture is very bright, according to Siragusa. “We've been talking about the EU decoupling of subsidies for a couple of years, and we're finally starting to see some of the impact,” he said. “It's forcing tomato prices sharply higher. Italian farmers right now want between $100-$105 a ton per acre. If you take into consideration freight and import duty on tomato products, that puts our pricing about at par.”
The real impact of the EU's decoupling of subsidies will be the export opportunities in other areas, according to Siragusa. “This is a very positive sign for us,” he said. “The Chinese government will increase subsidies for growers to plant grain. I think there are some good incentives for those growers to either switch out of growing tomatoes or to increase the price of those tomatoes.”
The overall picture in terms of demand is also very encouraging and bodes well for California tomato growers.
“Global processing demand is growing between 750,000 to a million tons a year,” Siragusa said. “There isn't any area that's picking that up. The U.S. dollar is projected to continue to be weak, and that's another positive sign for export. All we need is water and sufficient acreage.”
“I think we're entering into a period of change in the California processing tomato industry,” Siragusa said. “Other row crops are providing competitive returns at lower risk and that is taking away tomato acres. Who would have thought that we would see wheat at $300 a ton or corn over $200? These are huge swings. We've had reports of landlords telling growers ‘You're not going to grow tomatoes. We're going to grow grain.’ So I think we're going to start seeing some real changes out there. Hopefully, we can all manage it so that there are margins on both sides of the table.”
Part of the answer is a continued push to promote the health benefits of processed tomatoes to the general public, thereby increasing demand. The Tomato Products Wellness Council was formed a little over a year ago. It is a voluntary organization supported by all entities within the processing tomato industry. The goal is similar to other very successful commodity-based outreach efforts such as the almond industry. Through research into health benefits and promotional efforts, the Tomato Products Wellness Council hopes to emulate those success stories.
“The funding pales in comparison to the almond board's efforts, but it does show that we are moving in the right direction on a voluntary basis,” Siragusa said.