TOMATOLAND Processing Tomatoes Market Report 27th. January 2009 EUROPEAN UNION : Italy 2008 crop ended with an official figure of 4.776 Millions MT. of fresh tomatoes, very close to the 4.8 Millions in 2007. As explained before, the crop was reduced by an average 15 % in the North (2,076 Millions MT.) because of poor weather conditions and was close to the original program in the South (2,356 Millions MT.) and in Central Italy (0,342 Millions MT.). Tomato paste production was mostly affected by the reduced volumes of fresh materials, so was the quality because of larger than normal percentage of green tomatoes. The production of peeled tomatoes, whether diced for industrial usage or whole and diced in cans for retailers was overall better despite some reductions in the North. For 2009, the price of fresh tomatoes should slightly increase at 80.5 / MT. (105 US $) ex-field. At this stage, the expected increase in volume is between 10 and 15 % in North Italy and remains unclear in the South. Negotiations between farmers and processors have been easier than in 2007 as both parties agree to limit the crop : a much higher price may have pushed growers to increase too much surfaces devoted to tomatoes. Growers associations even considered at one point to anticipate the full decoupling system to 2009! The expected increase will lead to a limited drop in EU subsidy that should remain above 1 200 per hectare. Other news : A sugarbeet factory is planned to be changed to a tomato processing unit with a capacity of 1 500 T. per day in Ferrara and start its operations during the 2009 crop. 1/8
Spain : The situation in Extemadura and especially in the western part of the region has never really recovered from a late and poor start; Spain finally finished with a total crop of 1.73 Millions MT., down from the contracted 1.9 Millions MT. but very close to the 2007 output of 1.75 Millions. It is too early to make a very accurate projection of the 2009 crop as most decisions will be taken in the first half of February. It is however forecast that fresh tomatoes prices will here also slightly increase from 2008 and should be in the 78 to 80 per MT. range ex-field. Most Spanish factories intend to contract the same quantity they contracted last crop or slightly more; however, as they only received between 80 to 90 % of the program in 2008, this should lead to a global increase of about 15 %; and possibly more when taking into consideration a significantly higher volume in Andalucia as local growers have now enough water to plant more tomatoes. Spanish growers will consequently receive between 200 and 300 per MT. less subsidies per hectare than in 2008 (1 175 per Ha) and will have the lowest income per hectare in Europe! Other news : Tomalia factory in Santa Amalia will likely increase its capacity by 1 000 MT. of fresh tomatoes per day. The new factory Tomcoex located in Miajadas, next to Tomix, should start operating by next August; it will process finished products such as ketchup, tomate frito or crushed tomatoes in cans, bricks and glass bottles. According to local information, Conesa will run the Pinzon factory located in Andalucia. Portugal : The 2008 crop has finally ended at 1 Million MT., close to the initial program. The forecast for the 2009 crop stands at 1.1 Million MT. No price indication for fresh tomatoes yet. 2/8
Greece : The 2008 crop stands only at 0.67 Million MT., lower than the initial program of 0.8 Million; a fourth consecutive drop from 1.2 Million MT. back in 2004. Greek packers intend to process up to 0.85 Million MT. in 2009. France : The 2008 crop has reached 0.125 Million MT., close to the initial program; a slight recovery after the record low harvest of 2007 below 100 000 MT. of fresh materials. Price of fresh tomatoes will increase in 2009, possibly up to 85 / MT. exfield as most processors want to increase their production and a new factory based in Provence plans to process 70 000 MT. The total crop could exceed 200 000 MT. of fresh tomatoes. French farmers will suffer a significant drop in EU subsidy but still enjoy the highest one in Europe between 1 800 and 2 000 per hectare! E.U. Market news : The market situation has been very quiet since mid November with little demands from European or foreign buyers. Different reasons can easily explain this : the last trimester is often very calm, buyers are mostly well covered especially in Europe, buyers are reluctant to pay the very high market prices and last the economic crisis is definitely pushing users to be careful! Nevertheless, EU prices remain very high for all processed tomato products, not to mention zero stocks for some items : aseptic diced tomatoes is priced above 500 (650 US $ / 450 ) per MT. ex factory, aseptic 28/30 % cold break paste is around 1 050 (1 365 US $ / 945 ) per MT. ex-works when 36/38 % paste (last indicative price at 1 270-1 650 US $ / 1 125 ), pizza sauce (12/14 % above 550-715 US $ / 495 ), or hot break paste are virtually unavailable! Although some analysts predicted that some hidden stocks could come out later, that supposedly slow shipments could push sellers to offer some volumes of contracted products, the situation has not changed much since last October. At this stage, processors have not reported any significant slow downs in shipments despite the economical crisis except in United Kingdom. It is not easy to make any forecast on the effect of the current crisis on the consumption of industrial tomato products : on one hand, processed tomatoes is a widely used ingredient in ready meals such as pizzas (rather 3/8
expensive products) which consumption is supposed to suffer from the consumers new behaviour; on the other hand, products such as tomato sauces, ketchups, pasta dishes (raviolis, cannellonis, lasagnas), canned baked beans in tomato sauce are heavy users of processed tomatoes, usually low priced and could benefit from the situation. Moreover, sellers are reporting some spot demands for paste and pizza sauce in recent days from U.K., France or Central Europe. If these requested volumes reach a certain level, E.U. prices may climb further unless buyers can source products from other origins such as China, Turkey or California (see below). As expressed above, the European 2009 crop should be 10 to 12 % higher than the one of 2008 with an expected volume around 9.6 Millions MT. (see the Global processing tomato volumes updated Jan. 20 already on line), up from 8.6 Millions MT. in 2008. The question is whether this increase will lead to any oversupply and consequent prices reductions. At this stage, this volume expresses the production intentions of the factories and some professionals wonder whether farmers and processors will be able to finance this large quantity in the current financial environment. Moreover, this extra volume is not a problem as we will enter the coming crop with virtually zero stocks and we need to rebuild operational inventories claims an Italian processor. Based on this approach, some traders expect 2009 opening prices to be : 28/30 % between 900 and 1 000 (1 170 to 1 300 US $) per MT. depending on contractual conditions, 36/38 % between 1 150 and 1 200 (1 490 to 1 560 US $) per MT., diced tomatoes between 450 and 480 per MT. and 12/14 % pizza sauce between 480 and 520 per MT. all ex-factory. On the other hand, with prices of fresh tomatoes overall unchanged, some buyers expect prices to remain close to the opening levels of 2008, not to mention the impact of the dramatic economical crisis. The very early negotiations, expected to start soon with large groups, will give us a clear indication of the 2009 price levels. CALIFORNIA : The 2008 output has reached 11.6 Millions short tons (10.5 Millions MT.) obtained with a yield of 42.03 short ton per acre (94 MT. per hectare) on 276 000 acres (111 693 hectares), finally not so far from the early forecast of 12.2 Millions short tons. Strong late deliveries including in October have indeed well compensated the very slow start of the Californian crop. The 2009 crop intentions stand at a record level of 13.3 Millions short tons (12 Millions MT.); this figure recently supplied by the NASS (National 4/8
Agricultural Statistics Service) is obtained by surveying the processors intentions but is not a forecast yet. Several processors have indeed decided to increase their production next crop, especially Morning Star with a possible increase exceeding half a million short tons. Although shipments are currently running strongly (see below), one might question the reasons pushing US packers to increase so much their coming production, not to mention that a stronger dollar (around 1.3 per Euro against 1.5 a year ago) may not help exports. Recent changes and problems faced by some local processors may push several packers to run after the same users told us a large broker to justify this increase. Whether processors will manage to contract their expected volumes with farmers is still unknown. Negotiations on acreage have already started; prices should range between 80 and 85 US $ per short ton (88 to 94 US $ - 68 to 72 / per MT.) ex-field.; a steep increase from 2008, maybe fuelled by the extra demand from packers. Market news : As shown by CLFP figures, the US apparent consumption between June to December 2008 has risen 14 % from the same period in 2007 to reach a record 5.9 Millions MT. (equivalent fresh tomatoes) or 1 Million MT. per month. This is more than the 2008 production (10.72 Millions MT.)! This strong demand has helped prices to remain high : 31 brix paste in bins is offered around 50 cents per pound (1 100 US $ - 850 per MT.) ex-works and 2 cents (45 US $ - 35 ) more in drums. 36/38 % is not available at this moment according to our information. Prices should remain strong for the 2009 crop expects a local packer. CHINA : The 2008 crop came out with an official figure of 6.4 Millions MT. of fresh tomatoes; as expressed earlier, we question this volume but agree that China processed more than 6 Millions MT. (around 7 Millions short tons!) of fresh materials, a record definitely installing China at the second place of the world processors next to the USA. We have already recorded some information about the coming 2009 crop : An extra 8 to 12 processing lines should be installed by the large packers in Xinjiang and in Ningxia province (Shi Zui Shan city), a new processing area. This will bring approximately 12 000 MT. extra daily capacity (450 000 MT. of fresh per crop) ; plus some smaller local made lines to be installed both in Xinjiang and Inner Mongolia. 5/8
Cofco Tunhe and Chalkis will import almost 200 harvesting machines from the USA (FMC, Gerard) and Italy (Guaresi, Sandei) to implement mechanical harvesting in Chinese fields; these equipments could theoretically harvest around 13 000 Hectares or one million MT. of tomatoes based on the average Chinese yields. The local processors are officially switching from manual harvesting to achieve a better planning of the crop and because of a lack of labour during the harvesting period. It is also probably the sign that processors are willing to control the growing of tomatoes like it is done in other processing regions. According to local sources, Cofco Tunhe has announced a price of 370 RMB. (about 55 US $) per MT. of fresh tomatoes ex-field for farmers, the highest level ever for a pre-crop price. However, it is too early to properly forecast the 2009 contracted volume; it will likely increase from 2008 and we should be able to learn more during the coming weeks. Market news : After reaching record levels during October with the aseptic 36/38 % paste at 1 300 US $ per MT., Chinese prices have dropped back to more reasonable levels. A slow demand as well as a good resistance to these high prices by price sensible markets buyers easily explains this reduction. As of today, 36/38 % paste is offered between 1 050 and 1 150 US $ (820 / 900 ) per MT. depending on packaging, shipment and payment conditions and, more important, quality requirements. One must notice that most offers come from small packers as large ones still declare to be sold out. Although the demand, especially from Russia and North Africa, has grown again since the beginning of the year, analysts wonder whether prices will keep on decreasing in coming weeks and months, especially after the Chinese New Year. On one hand, we still believe that exportable stocks available are limited in quantities especially as Cofco Tunhe and Chalkis are not offering paste or at best small volumes. Moreover, we have clearly identified markets where the demand is not covered till the next crop. On the other hand, many small processors need to ship out their production quickly to cash money; also, some traders report delays in shipments to Middle East and again to U.K. We expect to find available products within 2 to 3 months reports indeed a large trader. If exports decrease in coming weeks, Chinese inventories could indeed build up and push prices down. However, we still question the quality of the paste available and the reliability of the sellers. 6/8
TURKEY : The 2008 crop has reached a record level of 2.7 Millions MT., thanks to good climatic conditions, especially in September! A large share of this volume has been processed into cans and the production level of industrial tomato paste has remained more reasonable. The early indications for 2009 stand between 2 and 2.2 Millions MT., a 25 % drop from last year, quite a unique move among the large processing regions. Market news : Local processors are currently holding large stocks of unsold tomato paste in cans and market conditions are becoming quite negative according to local sources. Some processors are also holding some scarce quantities of aseptic tomato paste for exports, mainly 28/30 % Hot Break. Current price stands around 1 250 US $ (960 ) per MT. FOB Izmir for immediate shipment. CONCLUSION : The global 2008 crop has reached a record level of 36 Millions MT., up 8.5 % from 2007 with growers enjoying large price increases, up to 60 % in some regions (see the 2008 fresh tomatoes prices on www.tomatoland.com for details). The main increase came from China which processed more than 6 Millions MT., up 1.3 Millions MT.! Despite this steep increase, the production has easily found buyers around the world and available volumes are currently low in most areas. The world consumption has indeed increased to an estimated 36 Millions MT. 2008 opening prices were approximately 30 % higher than the ones of 2007 and have increased to unprecedented levels! As shown by the latest 2009 crop forecast (see at www.tomatoland.com), the coming production could increase by 6.9 % from 2008. This is an additional 2.7 Millions MT. of fresh tomatoes to be processed! North America could add about 1.35 Million MT., Europe 1 Million MT. and China more than half a million MT. when other regions production could remain unchanged or even reduce. As explained above, this volume expresses the intentions of the processors and can only be achieved provided that farmers agree to grow enough tomatoes, that sufficient financing is available both to farmers and processors worldwide and, last but not least, that weather 7/8
conditions are favourable. Precise contracted quantities will be available, at least for Europe and the USA, by the end of February. Prices remain firm in most producing regions (USA, Europe) but tend to ease in China and Turkey as explained above. Stocks of unsold goods are indeed at very low levels, especially in Europe, and most processors will enter the 2009 crop with acceptable inventories. Should this situation help sellers to achieve high prices, above 2008 opening ones, despite the expected production jump and the economical crisis? We believe that this will be the case in the European Union and in California. It is too early to properly evaluate the future situation in China. We first need to understand whether the large stocks of unshipped goods will be effectively taken by buyers in coming weeks and months. Overall, should the consumption of tomato products remain not too much affected by the current crisis then market conditions will remain favourable for processors in coming months. We expect sellers to fight very hard against any price increases to better cope with the negative economical environment. To offer cheap food is almost a guarantee for success in coming months explains a large industrial user. The negotiations promise to be tough but sellers are in a good position to impose higher prices than in 2008. 8/8