COMPREHENSIVE NEWS & ANALYSIS OF THE WORLD PROCESSING TOMATO MARKET

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1 ISSUE N 12 OCT. 08, 03 TOMATO MARKET REPORT COMPREHENSIVE NEWS & ANALYSIS OF THE WORLD PROCESSING TOMATO MARKET Europe Italian crop recovers in September! Other countries should also finish with good volumes! USA 2003 crop even shorter than feared! Prices tend to increase lately. Turkey 2003 crop close to record level! China The big players in troubles but total production is high! Iran A good Iranian crop now expected! Attractive prices available! Australia Heavier rains should help growers for 2004 crop. Central & Eastern Europe, Russia Buyers turn again to Iran, Azerbadjan and Uzbekistan! Breaking News One tomato processing factory for sale in France! (contact us for more details) Key number Agricultural aids : 4 % in Australia, 18 % in Turkey, 21 % in the USA and 35 % in Europe. Source : OECD 2001 (all agricultural products) Our Sponsor LOW COST TRANSPORT FOR FOOD D PRODUCTS 1

2 Note : Exchange rates as of October 8 th. are 1.17 $ and 0.70 per Euro. EUROPEAN UNION : Italian crop recovers in September! Harvesting is now finished in most regions. Final figures should be available shortly but we already have quite a clear picture of the European situation. Italy s final volume is still subject to some speculations as we are missing some detailed information from the Ops (growers organizations); according to processors sources, North Italy has processed about 2.4 millions MT. and the South could end up with 2.6 millions MT., giving a total figure close to 5 millions MT., down 9 % from the initial program but higher than previously announced by local sources. September has indeed been a very favourable month, especially in the South. Very good climatic conditions allow good harvesting, high quality as well as high yields for the late crop. This unexpected recovery has widely offset the effects of the heat wave in July and August. North Spain (Navarra) has also enjoyed a good September which helped to improve the situation. Spain should be down about 10 % from the initial program (2 millions MT. according to official figures) with a final output between to 1.75 and 1.8 millions MT., about 8 % above last year s crop. France latest figures stand at MT., the same volume as in Production in Portugal is virtually finished with only one factory still processing this week. September production has been good but, with fresh tomatoes shipped to Spanish factories, total output should not exceed MT., close to earlier estimates. Last, Greece has also benefited good climatic conditions in September and should end up with a volume between 900 and MT. of fresh tomatoes; some stocks of aseptic paste are reported available from several processors, but only in limited quantities. Overall, European Union will end up with a total output of about 8.7 millions MT., down from the the initial program of 9.5 millions but quite close to the pre-crop estimates which was standing at 8.95 millions MT. end of June Despite the higher production now foreseen in EU, market conditions have not changed significantly from one month ago. Paste supply should be enough to cover the buyers need but quantities available seem limited (and only in few hands), especially for 36/38 % Cold-Break and 28/30 % Hot-Break. Low concentration products (pizza sauces, passatas, ) are also quite rare with available large volumes only in Portugal and possibly Greece to our knowledge. An Italian processor reveals that demand is null on these products at the moment. Last, diced and crushed tomatoes production has suffered more than other ones and some processors are already short in their contracts. Replacement volumes from outside EU, mainly in Turkey, have already been contracted both by buyers and sellers! The retail markets for canned paste is quiet according to a large European supplier. A large part of the volumes have been contracted by the retailers and only limited quantities are still opened. We have a similar situation in canned peeled and diced 2

3 tomatoes also reveals an Italian repacker, at least in France and Germany. Last, the market for tomato sauces and ketchup is more active with very competitive prices. The price for industrial tomato paste is now around 650 Euros / MT. (760 US $) ex-works for aseptic 28/30 % CB (+ 30/40 Euros for Hot Break and + 50 Euros for small aseptic bags) and 780 Euros / MT. (910 US $) for 36/38 % CB! Although we might see these prices going slightly down if some processors manage to build up some stocks, one should not expect any significant drop in the near future! Low concentration products have also followed the same trend upward : 12/14 % sauce pizza sauce is currently offered at 380 Euros (445 US $) per MT. ex factory. No prices are available to us for aseptic or diced tomatoes; one can expect the price of aseptic diced tomato to be above 420 Euros / MT. (490 US $) again on ex-works basis! Prices of retail packed tomato products are still attractive despite higher costs of raw materials : 28/30 % paste is offered at 7.8 Euros (9.1 US $ GBP) for 70 g. can (carton of 100) and 7.45 Euros (8.7 US $ GBP) for 140 g. can (carton of 50), both on ex-works basis. Paste in 1Kg. tin (840 g. net weight) sells for 8.6 Euros (10 US $ - 6 GBP) per carton of 12, also on FOT basis. Peeled tomatoes are now available at 4.8 Euros (5.6 US $ GBP) per carton of 12 cans of 1Kg. and 5.7 Euros (6.67 US $ GBP) for 1/2 Kg. in cartons of 24 units, again in ex-works basis. Tomatoland has also closed some deals in ketchup : 560 g. plastic bottle are offered for 0.45 Euros (0.52 US $ GBP) per unit, 750g. plastic bottle for 0.55 Euros (0.64 US $ GBP) per unit, 340g. glass bottle for 0.34 Euros (0.40 US $ GBP) per unit; all prices ex-factory. From October 11 th. to 15 th., ANUGA - the world largest food exhibition, will offer a unique opportunity to tomato buyers and sellers to meet! One privileged place to do so and discover the latest innovations in tomato products is TOMATOLAND booth in Hall 5.1 C22. New in the Economic Information folder : A breakdown of Spanish tomato production in 2002, factory per factory. USA : 2003 crop even shorter than feared! Volumes delivered to Californian factories, as reported by the PTAB (Processing Tomato Advisory Board) reports, have dropped rapidly from Sept. 20 th. with less than half a millions short tons per week. The total final figure should be no more than 9.3 millions short tons (8.2 millions metric tons), more than 1 million tons lower than initially contracted by local processors! Although it is down 15 % from 2002, local processors fear stock levels to remain high, too high according to some sources. On the other hand, prices are slightly firming up at 28/29 cents a pound, or 615 to 640 US $ (525 to 550 Euros) per MT. of 30/32 % Hot break aseptic paste FOB Pant; some higher prices are also reported from California but 3

4 average market prices remain low, when compared to EU, even when using a 1 Euro / US Dollar exchange rate. Available in the Economic Information folder : A breakdown of California tomato paste capacity in 2002, factory per factory. TURKEY : Record crop? As stated in our previous report, Turkey still had plenty of tomatoes in the field at the beginning of September. Favourable weather conditions helped processors to achieve good production volumes during the past month and the production is still going on in areas with green tomatoes still available in the fields! One local processor predicts a record crop of about 1.85 millions MT. of fresh tomatoes (including MT. processed in sun dried tomatoes and diced), up more than 20 % from Turkish factories have processed good volumes of canned paste (estimated at MT. of finished products), aseptic paste (around MT.) and diced tomatoes (possibly up to MT.); except for the very late tomatoes currently processed, the quality is overall satisfactory according local sources. Still, Turkish sellers are quite firm in offering their products; total exportable paste should be around MT. according to a local processor. Prices remain high (in US dollars terms) and local processors are confident they should empty their warehouses by crop s end, if not before! Also to be mentioned are the strong domestic demand (the unexpected and rapid economical recovery is already being felt and local prices remain very attractive for local packers) as well as the large volumes being shipped to Iraq, the new market for Turkish processors! Current prices range between 700 and 740 US $ (600 to 630 Euros) per MT. for aseptic 28/30 CB and between 840 and 880 US $ (720 to 750 Euros) for 36/38 CB also aseptically filed in bag in drum, both FOB Izmir; depending mainly on payment and shipment conditions. Export demand is good but not very high reveals a local exporter; we should better see the real need of the market during ANUGA he also estimates. Many packers have indeed kept some ammunitions for the fair to maximize prices if possible. Aseptic diced tomatoes are still available between 380 and 400 Euros per MT. FOB Izmir. Some large deals have been closed with European processors around 350 Euros per MT. for immediate shipments; we remind you here that Turkish diced tomatoes are paying 14.4 % duties in EU for any imports made before January 1 st when the 8000 MT. duty free quota re-opens. Last, prices of canned paste stand at 850 US $ / MT. (Gross for Net) for 1/2 Kg. Tin (0.425 US $ Euros per can), 725 US $ / MT. for 1Kg. Tin (0.725 US $ Euros per can) and 675 US $ / MT. for 5 Kg. Can (3.35 US $ Euros per can); all prices given FOB Izmir for prompt shipments. Available in the Economic Information folder : 4

5 A breakdown of Turkish tomato production in 2002, factory per factory. CHINA : Difficult time for Chalkis! China is not short claims a European broker selling large volume of Chinese paste to various world markets. This statement may sound as a surprise to many professionals, starting with the customers of Chalkis and, to a lesser extent, of Tunhe. The 2 largest suppliers have indeed processed much less than expected (around 50 % of the initial program for Chalkis and 75 % for Tunhe according to local sources!) and will be unable to deliver all the contracted quantities. Not to mention that an important part of the production is of very poor quality! They are currently processing Cold-Break paste with a colour of 1.9 (a/b ratio) informs us a large trader, expecting claims and problems when actual deliveries start. Still, the total Chinese production should be between 2.8 and 3 millions MT.; this is 20 % higher than in 2002 and close to the level expected at the beginning of the crop. The problem comes from the fact that Chalkis and Tunhe have sold large volumes before the harvesting comments a Chinese trader; the delay in the start of the crop has made it impossible for them to achieve the forecast quantity; not to mention the extra costs of raw materials caused by the stiff competition among processors in September; our cost has increased by an average 10 US $ per MT. of fresh tomatoes over the season told us a local processor; this makes about 80 US $ per MT. of 36/38 % paste! Nevertheless, the total Xinjiang production should reach MT. of paste, mainly 36/38 %, to be added to MT. and MT. respectively in Gansu and Inner Mongolia provinces, giving a total output of about MT. of paste, equivalent to 2.8 millions MT. of fresh tomatoes processed. Some analysts make a higher estimate at 3 millions MT. However, the local consumption of paste is said to have shot up from MT. (finished products) last year to up to around MT., thus reducing the quantity available for exports to only MT. Still, if such a figure is confirmed and if customers are ready to accept lower quality products, China should be able to cover a good part of its traditional customers needs. However, this will require to deal with a large number of players, factories and trading houses, mainly on spot basis with serious uncertainties for the buyer! Prices before the National Day holidays (finishing October 8 th.) were standing at 600 US $ (515 Euros) per MT. for 36/38 % paste and 540 US $ per MT. for 28/30 %, both on FOB Tianjin port basis. These prices are given for immediate shipment and payment; one should not expect to sign any long term contract under the current circumstances! Also to be mentioned is the higher freight costs to Europe (from about 55 US $ per MT. a year ago up to 75 US $ per MT. this crop!) and to most destinations abroad. Thanks to the drop of the US $ against the Euro, these prices are still very attractive for buyers with currencies linked to the Euro. We recommend them to be very cautious on the quality issue this crop. 5

6 Available in the Economic Information folder : A breakdown of Chinese production in 2002, company per company. IRAN : crop looking good! According to local sources, the Iranian crop is developing properly with favourable weather conditions. The quality of the final product is reported good; however, professionals argue that, with many old and poorly maintained machines still running, the quality can widely vary! Needless to say that buyers should be careful of where they get the product from. When processed by modern equipments, the aseptic paste can respond to high standard industrial requirements. Although the local crop can go on till November, it seems that a large part of the expected output has already been contracted by traditional customers in Middle East, former Russian Republics and of course Russia, a large user of Iranian paste. Latest price for aseptic 36/38 % aseptic paste stand between 640 and 680 US $ (550 to 575 Euros) per MT. FOB Bandar Abbas port (freight rate to Europe is about 60 US $ per MT.). This comes to a C&F price quite close to the Chinese ones for the lowest offers! Please do not hesitate to contact us if you are interested to receive offers from this origin. AUSTRALIA : heavier rains should help growers for 2004 crop There have been some normal rain patterns at last and the availability of irrigation water is better than was expected earlier in the year and certainly ahead of last year» indicates Barry Horn, the best local specialist on processing tomato. Local irrigation system range between 64 and 100 % depending on areas (only one exception for Loddon with only 13 %) and have great chances to get 100 % of the water supply they need. Processors and growers are currently engaged in contract negotiations. These negotiations are taking place in a difficult environment as growers need to make some money this year as most had to buy water at last year at uneconomic prices. Processors, on the other hand, are squeezed by the low prices at which tomato paste can be purchased from California (this may change) and at which Italian peeled tomatoes can be landed here after benefiting from both production and export subsidies. We shall keep you posted on the total contacted acreage (and volume estimations) when available to us. EASTERN EUROPE & RUSSIA : Buyers turn again to Iran, Azerbadjan and Uzbekistan! Following the Chinese problems, local buyers are turning more towards their traditional suppliers in Iran, Azerbadjan and Uzbekistan. As explained above, Iranian prices are quite attractive; also lower transport costs and shorter transit time than from China are welcomed by customers. Azeri tomato paste 30 % is currently available at around 520 US $ per MT. ex-works Lenkoran; again an attractive price when compared to international ones as Azeri and Uzbek sellers enjoy duty free 6

7 sales to Russia; not to mention that Russian traders are feel more comfortable dealing with such origin than with remote ones (no language barrier, easier financing, ). OUR CONCLUSION : A normal crop should lead to a world balanced market! Except for some areas like California, September harvesting has allowed to recover some of the losses of July and September. Overall, Europe will then finish with about 8.7 millions MT. (32 % of total world crop), little above the average production of the past 5 years. This should lead to some stocks reconstruction, at least for paste but, good news for the processors, long term prices should remain at good levels, probably close or even slightly higher than there were prior to the crop. The USA are in a slightly different situation; despite the lower crop, stock levels remain an issue, at least for some processors, but prices should benefit, at least on the short run, from this volume reduction. Turkey, Iran but also China will end up with higher volumes than in 2002 but should have no problem to sell their stocks before the new crop. The only potential problem could come from the poor quality of the Chinese products. Total production should exceed 27 millions MT., 1 million MT. (+3.8 %) more than the past 5 years average. Still, as shown above on a region per region basis, this should lead to an overall balanced market as, except for the USA, processors entered the 2003 crop without any stocks in hands. Unless they significantly increase their production volumes, Southern hemisphere producing countries (Chile, Brazil, Argentina, Australia, South Africa ) should also be able to find buyers at reasonable prices. As explained before, one can also expect a higher consumption in the USA, Japan, Russia, China, Turkey (together with Irak) and possibly in Southern America. These extra volumes should offset the slow demand within the EU and could lead to a tighter market as we approach the next crop. Again, the Southern hemisphere production could help regulate the market in case of market tension. Last, we can see that, over the last 5 years, the share of the Mediterranean basin (EU + Turkey) in the world production is quite stable at around 40 %; the same for North America with about 38 %; the change comes from China which now accounts for about 10 % of the total output (against 5 % in 2000) with smaller countries reducing their shares. Except for the expected Chinese production growth in the coming years, the main change will come from the change in the EU agricultural policy that should have a negative effect on the European production after Also to be followed is the potential reduction in duty rates, another important goal of the OMC. 7

8 TOMATO INTERVIEW The interview of Mr. Enver DEMIRCI from DEMKO - Turkey - will be available next week. Visit now the new Tomato Trading Board!! Efficiency and savings in sales and supplies!! The Tomatoland Team 8