WOOD PRICES ON THE RISE

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Morning Star looks to new packaging options as wood prices continue to rise

One of the many benefits of purchasing tomato products from Morning Star is the ability to choose how your product comes. We offer 3 main types of packaging: wood bins, plastic bins, and 55-gallon drums. The most common option that our customers choose is the wood bin. Wood bins have many benefits, which include multi-year reusability, fill capacity, efficiency in standard plywood sheet sizing, ease of manufacturing, recyclability, waste-to-energy power generation, and the often overlooked ability to turn the wood bin into a clean plastic bin by removing the Bin-Top and draping the interior blue Poly Bin-liner down the outside sidewalls of the filled wood box. Some higher-level benefits are overall strength due to the outward pressure (hoop strength) seen in the aseptic bag fill process, ability to store them long-term outdoors in adverse weather conditions due to compressive stacking, and ability to withstand the harsh railroad boxcar transportation environment over a potential 3,000-mile journey. These are all great benefits, but the most popular reason why people choose to use wood bins is because of the low cost.

Due to many complications over the last 12-18 months, the cost to produce wooden bins has gone up astronomically. There have been record-setting price increases due to shelter at home orders, reduced factory staffing mandates, unexpected weather, reduced imports, increased demand for new homes and home improvement projects, and many others.

WOOD BIN

Historically, these specific products have been price-stable with minor increases and decreases over time. Since late 2020 to current, 2021, there has approximately been a 200-250% price increase in the wood bin and other plywood and lumber-based packaging components. (See chart 1). This increase is shown by the sharp price increases in standard GMA (Grocery Manufacturers Association: 40” x 48”) shipping pallets, which are used for safe and efficient unitized Bag-in-Drum shipments.

CHART 1

The demand for plywood panels continues to drive the western plywood prices higher with several mills spending time off the market for preventive maintenance or lack of complete staffing. This, combined with a lack of some import products that typically enter the US market from international origins has minimized supply. In listening to wood suppliers and experts in the market, we are hopeful that prices will start to soften in the 1^st or 2^nd quarter of 2022.

As a way to offer value to our customer base by minimizing expected short-term higher prices in plywood, Morning Star is offering limited units of an innovative IBC (Intermediate Bulk Container) produced by Goodpack USA, Inc. This new IBC is called the Goodpack MB6 TomatoCube. It is made of 100% galvanized steel and was introduced to the California bulk tomato processors in 2019-2020. The MB6 may be a new secondary package concept, but the Goodpack company of products has been in existence since the late 1990’s with sizes that were not usable for Morning Star or our customers.

The Goodpack MB6 TomatoCube

The Goodpack logistics approach is different. Goodpack will deliver a clean, usable unit to the Morning Star factory in a ready-to-use condition. Morning Star will fill (sealed aseptic bag) and store the unit until the customer requests shipment. Once the product is used by the customer, the 4-sided hinged sidewalls will fold down and collapse onto the metal base and the separate metal cover is then placed onto the knocked down bin to create a completely knocked down 2-piece assembly. The customer will then contact Goodpack directly for immediate pickup, thus relieving the return shipping cost back to California.

Morning Star prides itself on partnering with innovators to ensure that new products are good for our customers. In the case of the MB6, units were tested to ensure bin assembly, powered and roller conveyance, high-pressure filling, long-term outdoors storage, and pre-shipping high-pressure water cleaning were all acceptable for our customers. Morning Star was privileged to be involved with the Association of American Railroads’ testing that was completed for the 50-Foot standard boxcar at the Transportation Technology Center, Inc.’s full-scale testing facility in Pueblo, CO in 2018. Morning Star is committed to continuing this involvement and support for future boxcar railroad testing in 2021.

MB6 Railcar Testing

We are also always looking for ways to minimize high wood bin costs by expediting the return of in-transit wood bins from customers and efficiently utilizing other unused IBC styles that might become available prior to this upcoming pack season.

2020 and the early part of 2021 have proved to be challenging times for many packaging supplies and components, but the commitment for innovation, validation and supplier-customer partner-shipping relationships will always be the mission for creating value for our customers and their needs.

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California Processing Tomato Industry Situation

By: Chris J. Rufer

Our California processing tomato industry has a history of meaningful ups and downs in production volumes, prices and profitability--as almost all industries do. (See Exhibits A, B, C & D)

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The Story

It’s a story of producers/suppliers languishing at prices just over variable costs for four or five years. Factories are closed and torched, and companies disappearing from bankruptcies or choice are the features of the languishing as we all fight for extra sales, which are not there in the marketplace as a whole.

It’s also a story of exuberance. For the following two years, profits are high, new factories are built and older factories expand wherever they can. The attitude takes hold that prices can only go up (e.g., the stock market and houses, right?). Plus, the demand for our processed tomato products seems to be expanding at a high rate.

That is the history of what I have seen and ridden for almost forty years. I have tried to study the markets and industry structure for this entire period with limited success at getting it right. The “invisible hand” of the markets is truly, reasonably invisible--at least to me.

My Big Mistake

I do remember well the last big mistake I made, one of many, of course. We (The Morning Star Packing Company) made a significant expansion in 2015, which left us with high inventories and excess capacity. It wasn’t just us, but we were a large part of it. But, this mistake was only in retrospect. As one can easily see in Exhibit E, market volumes were increasing pretty well from exports leading up to 2014 and 2015. A few factors lead up to this growth.

In the prior five (5) years, production in the European area decreased, China finally realized its losses and consolidated considerably and the Euro/Dollar relationship changed in favor of U.S. exporting (Exhibit H & Exhibit I). But then things changed again. The European area and China stabilized production, the Euro dropped from the 135 (dollars per Euro) range to under 110, plus smaller world producers (e.g., Ukraine, Russia and Tunisia) increased production.

California tomato paste exports have been in free fall ever since.

In 2014 when I decided to expand, I reasoned that if the exports did not rise as fast or as they had been up to that point, or if they even dropped, we could use our increased capacity to shorten the length of our season. By doing this, we could eliminate some late-season premiums to pay for the investment partially.

In one of our side businesses, I have a long-term partner; he commented to me some years ago to the effect of, “You only operate your factories so you can continue to build more. You’re really a construction company.” Some truth to this. So, while being on the fence economically, relative to deciding whether to expand in 2014-15 or not, I tipped to an exciting construction project and expanded production.

Industry Correction

Since 2015, our industry has fought very high inventories and over-capacity, as shown in the various Exhibits previously referenced. However, after the languishing of 2016 through 2020, the 2020-2021 years saw four factories close and two companies exit the business. One thing I have been pretty accurate at is predicting which factories will close next by tracking cost structures by factory and year.

All four of these shuttered factories (Hunts in Helm, both Olam (former SK Foods) factories in Lemoore and Williams plus Mizkan (Ragu) in Stockton), had structural cost problems. The SK Foods Lemoore factory problems were so bad that they significantly contributed to SK’s false inventory reporting, buyer kickbacks, collusion and finally bankruptcy and jail times.

A Golden Opportunity

With these closures, the industry has found new footing with a good balance of market volume requirements, inventory and capacity. Without those closures, we would still be languishing in red ink.

Am I going to repeat my mistakes? Is our industry going to repeat our mistakes?

The Market for California Ingredient Tomato Paste

As can be seen in Exhibit F, the market size for our processed tomato products has flattened. There is solid, stable demand domestically, and at some point in time, exports will also level off at some lower level--but where? In Exhibits J-1 and J-2 and Exhibits K-1 and K-2, one can see just how flat our market demand is and especially in lieu of the impact of the export volatility. We are clearly dependent on export potential for any volume growth and at more risk for volume losses from decreased exports. These are markets very reliant on prices, but just the Euro/Dollar improving in our favor will not be enough to correct our competitiveness relative to other world producers.

At this point, our foreign competitors in Spain, Chile and Canada, have seen their farmers making good improvements in their crop yields versus California farmers. As you can see at the bottom of Exhibit G, the processing sector has made considerably more progress in lowering costs and prices than the farming sector. The California processing tomato industry is hanging in there competitively, but expectations for exports appear highly questionable. Increases in paste pricing of over 25% this year could only influence exports to decrease; however, foreign prices have also increased, and the Euro has dropped against the dollar. What is going to be the result of this balance? I see flat to lower exports.

I once experienced being in an industry where its markets were decreasing in volumes, and it was a terrible situation--processing peaches (down from 1.5 million tons to now 250,000 tons). From tens of fruit processors but only a few decades ago, we have two remaining peach processors--Del Monte and PCP--a public, branded product company and a grower cooperative. Amazingly, their grower yields have not changed in at least forty (40) years. Grower innovation is vital to product volumes! Our California olive industry has only two remaining participants.

When an industry is experiencing an increase in market demand, prices are generally higher than cost structures and cycles from bottom to bottom are shorter. When market demand is flat, or especially when it is decreasing, these cycles are longer, and a depressed market situation for producers seems never to end (with prices barely above variable costs).

The California processing tomato industry is now in this same flat to decreasing market demand, shown in Exhibit G, in the column showing processing margins and titled “Years from Low to Low.” Now is not the time for expanding capacity--it is a death sentence for those who do. But, we always seem to be suckered into expansion in the face of higher prices. How suckered?

Nuances in the Current Market Situation

It is easy to see these trends in the Exhibits; however, some nuances drive these trends and make the ups and down accentuated--which is what is going on today and which everyone should carefully consider.

To review the ups and downs drivers, let’s begin the scenario with an industry situation of short inventories and balanced capacities (like we are at now). Here, prices go up to stop the factory closures and arrest the industry’s financial bleeding. This bleeding needs to stop because processing tomatoes are a good product with solid demand. Processed tomatoes are key ingredients used throughout the world, especially in American food meals, such as ketchup for burgers and fries, pasta sauce for pasta meals, pizza sauce for pizzas, and a plethora of other foods from salsa, BBQ sauce, meat sauces, tomato juice, frozen meals, etc. Furthermore, the cost of the tomato paste and diced tomatoes are a relatively small cost component in these core American meals.

While buyers of our products don’t admit it during our periods of languishing prices, excess inventories, and hungry processors, reliable supply is far more important to them than price, which explains why, when there is a hint of a supply shortage like now, prices spike. Even in the face of the basic supply/demand situation presenting as somewhat tight--but not “short.”

During this period of low inventories and price hikes, the key nuance is that buyers over-book their requirements. When buyers perceive the potential for a short supply, they try to cover themselves by asking for more product than they truly require. When calls to their regular supplier(s) for more product are rejected or are “put on a waiting list,” or they hear, “we’ll have to wait and see how the pack goes,” such that their suppliers appear to be reasonably full, they start calling all other suppliers.

Assuming one buyer, whose annual usage is five (5) million pounds, has two (2) regular suppliers and has asked each of them for an additional million pounds of tomato paste to no concrete avail. They then call each of the three (3) other remaining suppliers and ask each of them for a million pounds. “The industry” now sees a total “increase in demand” of five (5) million pounds--which is all phantom demand.

Take this further with an estimated two hundred (200) buyers with meaningful volume and well over two (2) billion pounds of total requirements. The above over-booking scenario could result in each supplier perceiving an increase in demand of up to 100%--all of a phantom nature. Not every buyer over-books nor over-books by 20%, but the perception is that demand has increased.

There is a saying that “perception is reality,” but the reality is that only accurate perception is reality. Correctly, people do act on perceptions, but acting on inaccurate perceptions leads to mistakes.

This activity also increases prices even more than the supply and demand balance would dictate to the degree this activity occurs.\

At this point in the industry cycle, the result of this scenario is that producers are encouraged by phantom demand and high prices to expand. If one studies the timeline of new factory openings or significant expansions, you will notice that they are lumped together a year to two after this scenario appears.

Of course, when this expansion occurs, it over-corrects and we over-produce--in spades (Exhibits A, B & F), and prices decrease. Then, the California processing industry and every company within it experience three to five years of depression (five or six years this last cycle). This time around, if expansion repeats, I would expect this scenario to be the most prolonged depression we have ever seen. (1) all remaining producers are well-positioned, relatively, to weather the next storm, so capacity will remain for a long time, and (2) we won’t have market growth to get us out of the imbalance of high inventories and excess capacity.

These past few months have seen ingredient prices go up over twenty-five percent (25%). Buyers and producers typically say they desire predictability in availability and pricing. If there is integrity in these statements, two things must occur, as follows:

(1) Buyers. Buyers need to stop over-booking and go to their current suppliers with realistic requirements to eliminate the phantom demand and moderate price increases. We all know marketing folks are optimistic, as that is their character, but they need to be taken to task. Please remember that the final demand is from the physical consumer, and I can’t see them eating any more than previously. Can you? What one salesperson/company gains in sales will be taken from another company with no net increase in demand for any bulk tomato paste or diced tomatoes.

While current and short-term inventories are low in the industry cycle, and some suppliers are playing the scare game in talk and not quoting pricing, the industry evidence is such that the low inventories are at a “normal” low for the cycle. Even if the crop is slightly below current expectations, we should have enough to get by. Further, buyers’ over-booking will not increase supply from the 2021 crop--that is a done deal as of now, only subject to forthcoming weather and unknowns (like COVID a year ago).

Again, buyers need to stop over-booking.

(2) Producers. The last time around, when we saw high phantom demand and higher prices, we expanded capacity and production. We then experienced ingredient product prices go down sharply by about twenty-five percent (25%). To add insult to injury, we paid a high price for tomatoes ($83/ton in 2014 and $80 in 2015)--a nasty double whammy. Therefore, prospectively, any additional production capacity put online at this time for additional ingredient tomato paste or diced tomato production will cause a fast and significant build-up in inventories and another quick industry depression. Producers should look to increase hours of production in 2022 to make up for moderately short inventories coming out of the 2021 season--not adding additional capacity.

Although, of the current seventeen (17) tomato processing factories operating today (not just for tomato paste), there are still, in my book, four (4) factories that could be closed to improve industry competitiveness. I would do this if I owned the entire industry, but I don’t. These factory owners are fine continuing to operate them and have no known financial problems. There are three (3) factories that could easily and very cost-efficiently expand to cover their production volumes.

Today, over 75% of California’s tomatoes are processed into bulk tomato paste, making it, by far, the largest California processing tomato product. Furthermore, we are currently down to only five (5) tomato paste suppliers--all of whom appear reasonably well-financed and productive. There are no noticeably weak producers anymore.

Summary

In summary, in my opinion, the California processing tomato industry is in a perfect balance of market demand and production capacity. We’ve seldom, if ever, seen this situation before and had the opportunity to have moderate but sustained viability for an extended period of time. We will realize this if we prevent over-booking, the appearance of phantom demand. A higher than fundamental supply/demand balance would drive prices and additional capacity brought online.

As needed, current capacity can operate for an extra 156 hours in 2022 (almost exactly one (1) week) to produce an extra one (1) million tons, which is very doable. Even doing that for only two (2) years will build up inventories to excess levels again.

But personally, my inclination is to design and construct, and we have the room to do that. But sitting back to think, I’m going to find a use for that desire and capability elsewhere, based on these lessons and current facts of our industry situation. I think Warren Buffet’s “genius” is not so much in his given intellectual genius, but in his discipline--when things get good, hold on, build your cash and wait for other opportunities--they’ll come and sometimes out of nowhere.

We always seem to have the ability to shoot ourselves in the foot again. Do we want to? Will we do it again?

Respectfully yours,

Chris J. Rufer, The Morning Star Company

Tomato Bites - February 23, 2021 Edition

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The Morning Star Packing Company provides an industry outlook with a snapshot report on price negotiations with the CTGA Board and our thoughts on Inventory and Movement for the 2021 and 2022 seasons.

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Morning Star Newsletter now distributed electronically

As a reminder, Morning Star is now distributing our newsletters electronically using an email distribution vendor called Mailchimp. Your e-version will now include informative Morning Star videos and highlights. Depending on your company's firewall, these emails may initially be directed to you spam folder.

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US Inventory Outlook

Balancing act ahead for the 2021 US tomato processing season.

One may ask: why is the California tomato industry already signaling a 2021 pack year tightness, with the new season still over four months away? We are at a point in our planning where we have a good view of what tonnage is possible to achieve for the upcoming season; acres are booked, and seedlings will start going into the ground shortly. Our industry is also tracked quite carefully and has good transparency of industry data, such as historical consumption averages (usually referred to as movement), and the collective US tomato industry inventory position published by the California League of Food Producers (CLFP). Numbers are always translated back to equivalent tons of fresh tomatoes in industry talk, making our position easier to review.

No one can predict the future, but we are able to tell you what we see right now. Taking into account the industry inventory position communicated by the CLFP on December 1, 2020, the five-year average historical movement patterns (which typically see a slowdown in the second half of the year), and knowledge of Morning Star’s own position and how it relates to the industry, we forecast a June 1, 2021, US total industry inventory of 3,485,000 equivalent fresh tons.

We expect the 2021 California crop to be about 11,750,000 tons and the rest of the US adding 500,000 tons for 12,250,000 tons of total production. Add the June inventory, and we see the industry heading into next year with 15,735,000 tons in the barn. History points to an annual movement close to 12,740,000 tons; however, Morning Star expects to experience a 600,000-ton loss of industry exports, landing us at a consumption of 12,140,000 tons for 2021/2022. This would leave the US industry with 3,595,000 tons in inventory on June 1, 2022.

INVENTORY AND MOVEMENT	EQUIVALENT FRESH TONS
Total US Industry Inventory - June 1, 2021	3,485,000
2021 California Season Production	+ 11,750,000
2021 Rest of the US Production	+ 500,000
Total 2021 US Availability	15,735,000
Less
Historical 12 Month US Movement	- 12,740,000
Adjustment for Loss of Exports	+ 600,000
Total US Industry Inventory - June 1, 2022	3,595,000

What does this all mean? If everything is perfectly balanced, the industry would have inventory on June 1 to cover customer demands for over three months, leading into the month of September. The current inventories for June 1, 2021 and 2022, are expected to be about 30% of four-year average historical movement, and 30% of a year is 3.6 months. To put this in perspective for those who remember, we can compare to the US industry inventory on June 1, 2014, coming out of the short curly top disease-affected 2013 crop, which was about 4 million tons.

As we all deal with an imperfect 18-month planning cycle, with inventories that are never perfectly in step with movement, things get demanding from a planning standpoint, or what you might call tight. The takeaway is that we need to be very rigorous in making sure our 2021 pack is well-proportioned according to customer needs. We hope to be able to engage in detailed movement forecasting reviews with each of our customers in order to help us strike just the right balance.

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Global Crop Increases Less Than Expected

The WPTC estimates final international production at 38.54 million mT, 2.1% below forecast.

In one of the most challenging years in recent memory, global processors successfully wrapped up a tumultuous season with 38.54 million mT produced. While this number represents a 2.1% drop from the original forecast, it also demonstrates an increase in overall global production of 3.1%, compared to 2019.

Processors worldwide faced new challenges with the emergence of COVID-19, from adapting safety procedures to ensure the health and well-being of their personnel to marketing their products without the freedom to travel. Despite these setbacks, we can see that major processing countries still managed to process another substantial global crop.

Global Processing Forecast - Source: Tomato News/WPTC

Southern Italy finished with lower volumes than expected, primarily due to low water availability and poor yields in North Puglia. Northern Italy was able to process 95% of its original volume intentions, bringing the country’s total volume to 5.16 million mT.

Due to poor early yields, Portugal’s initial forecast of 1.4 million mT was only slightly higher than its 1.3 million mT of production.

Spain suffered from low farm yields (approximately 20% less than recent years), and production finished at 2.65 million mT.

Turkey’s crop was better than expected, and they benefitted from good weather at the end of the season, extending their harvest, and finished having processed 2.5 million mT.

China’s 80 factories together produced 5.8 million mT. With good weather in Xinjiang, the region produced 3.47 million mT in the north and 1.25 million mT in the south.

Now that the 2020 processing season is complete, processors must look towards global market trends to more efficiently plan for 2021. Given the impact that COVID-19 has had on tomato products’ consumption, processors should feel confident increasing volumes for the coming season.

With tomato products’ consumption increasing substantially in early 2020, we are starting to see new market trends. The demand for products to be consumed inside the home (e.g., canned tomatoes, purees, tomato paste, etc.) has increased by 7%, an impressive jump in an otherwise very mature and stable market with little growth. Sauces also saw a 6% jump this year. As a sector, processed tomato products saw a 4.6% increase in consumption, the most significant increase the industry has experienced in a decade.

Due to the COVID-19 shutdown and quarantine measures taken by countries worldwide, the change in consumer habits likely attributes to the increase in consumption. In recent years, companies that have suffered from slowing or declining sales are now experiencing boosts and are finding it hard to keep up with new, unexpected demand from their customer base.

With the global pandemic still very active and government shutdowns persisting into the winter months, we can expect to see a continued increase in at-home dining options. While initially thought to be a short-term market fluctuation, this unexpected increase for shelf-stable products may stay with us for the foreseeable future.

As processors look to the future, and in particular to the 2021 global crop, we believe these increased consumer demands and shifts in consumer behavior will shape the industry’s overall production efforts as well as global imports and exports.

Market Analysis: RECORD PRODUCTION YEAR BRINGS SUPPLY AND DEMAND INTO BETTER BALANCE

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domestic carryover Following the problem-stricken 2013 crop, the California industry has improved tomato paste inventories with the 2014 pack coming in according to forecast. Despite some regions affected by wet weather, the world crop was also boosted compared to last year, primarily lifted by China, California and Spain.

In California, market pricing remains steady in the high $0.40’s per pound for 31% NTSS tomato paste in a bin. This is a relatively high price compared to recent years, and reflects the high price paid for tomatoes of $83/ton, as well as lingering impacts of depressed marketing years from 2011-2013. Uncertainties about water supplies are contributing to the unstable pricing picture despite slightly improved inventories.

Our projections indicate that there will be slightly more than two months of tomato paste supply in inventory when the 2015 pack begins compared to last year’s average of three months. This is approximately in balance with expected demand; assuming that worldwide growth for paste-based products continues at about 2% typical of recent years.

For 2015, clouds may be lurking on the horizon in the form of regulations on water use. Morning Star’s growing production capabilities in Williams, located in the growing region north of the Sacramento Delta, will help mitigate water concerns and help to provide our customer-partners with the products they need to satisfy their requirements.

annual change in pricing for california paste industry

MARKET ANALYSIS: Tight Supplies Bring Up Paste Price

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DOMESTIC CARRYOVER After years of surplus, the processed tomato market is entering a year of very tight supplies. With the world’s crop short by three million tons in 2013, processors could not make all the product customers want. As a result, de‐ mand is greater than supply and prices are rising.

In California, paste on the open market is selling for about 40‐42 cents per pound. This price reflects that processor stocks are missing the one million tons of tomatoes California’s growers were not able to produce.

Domestic packers needed more tomatoes because demand has grown an average of 3.5% annually over the last five years. Assuming this demand trend continues, then in June 2014, packers would only have enough supply for 3.5 months of shipments.

Months of supply would be 22% less than the 10 year average and a 44% drop from the record high set in June 2011 when carryover was 6 months of movement. (See Domestic Carryover graph.)

Tight supplies require a greater partnership between packers and their customers to meet expectations. The stricken crop created gaps in deliveries to packers, limiting their ability to make some product. Therefore, product with certain specifications or packaging is unavailable, and customers will be asked to be flexible with their product requirements.

ANNUAL CHANGE IN PRICING

MARKET ANALYSIS: Ending Supplies Balancing

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Surplus Vanishing For the second year running, demand for tomato products from the United States hit record highs, according to the June 2013 stock report from the California League of Food Processors.

For the 2012/13 marketing year ending June 1, demand was 13.510 million fresh equivalent tons beating last year’s record disappearance by 3.4%.

Driven by export sales, the increased movement has outstripped domestic production for the last two years and eaten into a surplus which has sat on the shelves since the record‐setting 2009 season.

The graph below shows the months of carryover inventory available at the end of the marketing year (June 1), plus the 5 and 10 year averages. The green 10 year average line shows that packers aim for about four months of inventory going into the new season, since customers still need shipments before everything is packed.

After reaching an excessive high of 6.1 months of supply going into the 2011 season, carryover has fallen to more reasonable levels. In 2012, California packed its second-largest crop ever, but carryover inventories are at normal levels going into the 2013 season due to record demand.

This vanishing surplus and normalizing of inventories, even in high production years, reflects the strength of the U.S. industry.

After months of negotiation, the growers’ association and packers agreed in April to a 1.6% increase in the price of tomatoes for 2013. Growers will receive $70.50 per ton, the second highest price recorded. The record price was set in 2009 at $80 per ton.

MARKET ANALYSIS: Export Market Reshuffle

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U.S. TOMATO PASTE EXPORTS Exports have become increasingly important in driving the demand for California tomato paste. A growing percentage of the domestic pack is delivered outside the United States’ boundaries. Last marketing year, export volume hit record levels, and a record 23% of the paste produced in 2011 was exported.

Since 2008, the U.S. has been the 3rd largest exporter in the world, supplanting Spain for that spot. But the U.S. is still just a little guy on the world market when compared to the two leaders, China and Italy.

Even after its biggest export year ever, the U.S. traded one‐third the volume of China and half as much as Italy in 2011. (Source: Tomato News, October 2012)

China is a giant in the tomato paste export market making up 37% of the 3 million MT traded in 2011. To put it in perspective, China traded 38% more paste than Italy last year.

Global paste trade should be interesting to watch next year. For all intents and purposes, China has checked out.

Chalkis, China’s second-largest tomato processor, is being forced by a local court to restructure debt or file for bankruptcy. Top management has left in disgrace as bad financial news continues to surface, says a November 3rd Food News story.

With their focus now on long term profitability, Chinese packers have said they won’t drop prices to make sales, and since the crop was far below already depressed forecasts, China simply can’t offer as much product.

U.S. packers are poised to satisfy some of the gap left by China.

MARKET ANALYSIS: U.S. Stocks Shrinking

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U.S. Tomato Paste Exports At the end of last season, all indications were that California packers would need fewer tomatoes in 2012. It appeared that although demand was strong, stocks were very high so processors would want to balance supply by packing fewer tomatoes.

But things changed over the winter, and California expects to pack its second-largest crop ever. Demand is moving at record levels and a forecasted decrease in the international crop opens doors for the United States.

Disappearance out of United States’ warehouses from June 1 ‐ March 1 is up 7.9% over the same period last year. At 10.027 million fresh equivalent tons, movement of processing tomatoes is at record levels, according to the California League of Food Processors. This current 9 month movement is 2.4% greater than the prior record set in 08/09 marketing year, when

exports grew rapidly with a favorable exchange rate.

This record-setting disappearance has shrunk stocks of U.S. processing tomato products by 6.5% from last year.

Exports continue to drive the de‐ mand for U.S. tomato paste. Ex‐ ports from July‐February are 36% ahead of the same period last year and 3.4% ahead of the previous record set during the 2008/09.

As mentioned on the prior page, production outside California is forecast to fall 10% in 2012. As the major paste exporting countries of China and Italy decrease their production by 25% and 12% respectively, opportunities for U.S. paste should continue to arise.

Given the growing demand, California processors expect strong movement of their high‐quality product to continue.