TOMATO BITES by Morning Star - February 3, 2022 Release

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The questions we all want answers to heading into the 2022 processing tomato year.

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What does 12.2 million tons in 2022 contracts mean for processing tomato supply and demand?
How does the 12.2 million crop and acres relate to history?
Why isn’t a 24% price increase in raw tomatoes getting California more acres when there has been such a substantial jump in price? Surely, 24% moves the needle?

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This month's TOMATO BITES video is more like the WHOLE tomato. The California processing tomato industry is up against some unique challenges, so we’ve changed things up and this time invite you to sit at the table with Morning Star colleagues Aaron Giampietro and Mark De La Mater as they discuss the relevancy and impact of the recent CLFP and USDA NASS reports, as well as highlighting historical trends and anticipated impacts to supply and demand.

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California Processed Tomato Price Negotiations

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Economic grower cost analysis explains proposed prices for 2021 California tomato crop.

As planting season is upon us, we thought it would be a good time to provide a recap of Morning Star’s negotiations with the CTGA Board and our thoughts on the matter. From what we have heard from growers and Morning Star’s own sentiment there exists a desire to set an early price.

Sellers desire higher prices, and buyers desire lower prices, which is all very natural and expected. Both also have varying conditions and circumstances, which drive the variability in individual prices. Growers continue to hold their ground at 84.50 for conventional and $136 for organic. In all fairness, we genuinely feel $82.50 for conventional, and $127.50 for organic would be a reasonable 2021 price to maintain economic stability for the tomato processing and growing industry. The CTGA Board is set to meet this evening, Tuesday, February 23, and we are all anxiously awaiting its outcome.

Historically the CTGA Board has negotiated conventional prices; however, as you may or may not be aware, they have never before bargained for organic tomatoes. Morning Star was officially notified on November 19, 2020 that the CTGA would now negotiate pricing between organic tomato growers and processors.

In 2021 Morning Star performed an economic grower cost analysis to ensure we offered our growers a fair and reasonable price for conventional and organic tomatoes. In an effort to agree upon an early 2021 tomato price, on January 25^th, Morning Star proposed what we felt was a fair and reasonable price of $80.50 for conventional tomatoes ($2.00 higher than paid in 2020) and a base price of $126.00 for organic tomatoes, with Early and Late Season Premiums. On January 28^th, Morning Star increased our proposed price for conventional to $81.00 per ton ($2.50 higher than 2020) and on February 10^th, we proposed a revised base price of $127.50 per ton for organic.

Many cost inputs for growing tomatoes are not yet fixed, so they must be estimated. This factor, along with the fact that there is diversity of how growers calculate what goes into the cost of growing tomatoes, increases the difficulty of predicting cost. Growers are facing higher costs for their inputs for 2021, compared to 2020, like: labor, fertilizer and chemicals, water, and rent. The agricultural environment has also provided price increases for some competitive crops. Taking these factors into account within our economic analysis, with adjustments for expected yield improvements of 1% per year, a fair price would arguably be $81.60 or $3.10 higher than last year's conventional tomato price. Some of the same inputs that accounted for the $3.50 per ton increase from 2019 to 2020 are once again factors for 2021.

As in the case with conventional tomatoes, there are increasing costs for organic tomatoes, many of which are the same factors but to differing degrees by the nature of organic inputs. Looking at supply and demand for organic tomatoes, there is a high demand for organic at the early part of the season. Conversely, at the middle to the end of the season, there is not much of a demand because most tomato processors satisfy their pack at the beginning of the season. Morning Star felt that structuring a pricing model with early and late season premiums, would provide a competitive price when there is an early season high demand and provide for a potential increase in growing costs during the late part of the season.

Utilizing the demand/supply economic model, which was based on 2020’s actual California organic delivery schedule, we proposed our base prices as such:

January 25 Model – Rejected by the CTGA Board
Early Season Premium	Late Season Premium
$25.00 ($151.00 per ton W/E 7/10 or earlier)	$6.00 ($132.00 per ton W/E 9/25)
$20.00 ($146.00 per ton W/E 7/17)	$12.00 ($138.00 per ton W/E 10/2)
$15.00 ($141.00 per ton W/E 7/24)	$18.00 ($144.00 per ton W/E 10/9)
$10.00 ($136.00 per ton W/E 7/31)	$24.00 ($150.00 per ton W/E 10/16 or later)
Net Average: $135.98 per ton (based on 2020 delivery schedule)

February 10 Model – Rejected by the CTGA Board
Early Season Premium	Late Season Premium
$25.00 ($152.50 per ton W/E 7/10 or earlier)	$6.00 ($133.50 per ton W/E 9/25)
$20.00 ($147.50 per ton W/E 7/17)	$12.00 ($139.50 per ton W/E 10/2)
$15.00 ($142.50 per ton W/E 7/24)	$18.00 ($145.50 per ton W/E 10/9)
$10.00 ($137.50 per ton W/E 7/31)	$24.00 ($151.50 per ton W/E 10/16 or later)
Net Average: $137.48 per ton (based on 2020 delivery schedule)

We want all of our growers to be successful, as demonstrated by our investments in ag R&D and the selection of varieties that will provide growers good yields. The tomato growing industry needs to be one that is stable and offers fair returns to both grower and processor alike.

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