Excess supply, strong dollar tough on processing tomatoes
Staff Writer |
California is the world's leading producer of processing tomatoes, but has recently seen a slight decrease in overall production.
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Although domestic consumption remains stable, shipments to foreign buyers have slowed from recent years.
The impact in production is attributed to a decline in contracted grower price and acreage planted. The current grower contract price is $72.5 per ton - falling 12 percent over the last two years.
These trends and their impact on California's tomato production are examined in Rabobank's Food & Agribusiness Research and Advisory note titled "Processing Tomatoes - Peeling Away Inventories."
California tomato processors are having to strategize how they are going to manage with their abundant inventories, following record production years.
"Two consecutive years of record processing tomato production in 2014 and 2015 has propelled U.S. inventories to record levels," says Vernon Crowder, Senior Analyst with Rabobank and the report's author. As of June 2016, U.S. inventories were nearly 7 million tons, 39 percent higher than 2015.
"The abundance of product is putting downward pressure on market prices. Some processors indicate the YTD California tomato paste average market price to be USc 35 per pound -- 10 percent below the 5 year historic average price," added Crowder.
U.S. exports have declined with the strengthening of the U.S. dollar, causing processors to move products overseas at sustainably lower prices.
"Major buyers including Japan, Netherlands, Italy, and the U.K. are projected to decrease U.S. purchases in 2016 and possibly 2017, due to the relative strength of the USD," states Crowder.
Canada and Mexico continue to pay a premium for superior American products. Canadian shipments should hover around past year's average, while Mexico could see up to a 15 percent growth from last year. "U.S. processors have been forced to lower prices on exported goods and domestic products sold on the spot market, some taking a loss," added Crowder.
The report concludes by highlighting expectations for tomato growers and processors over the next couple years. "High inventory levels have reverberated across the market causing prices, acreage, and production to decrease in 2016.
"This may hold true for 2017 as well depending on the current year's inventory turnover," states Crowder.
"As inventory levels recover and foreign currencies catch up to the USD, the processing tomato market will begin to resume profitable operations," Crowder adds.
Although growers and processors may experience some challenges this year and next, the market should perform more positively in upcoming years. ■