What’s Ahead for the Central California Grower

December 9, 2004Fresno, California

Presented By

By

Mechel S. Paggi & Fumiko YamazakiDirector, Center for Agricultural Business

CSU, Fresno

Grape Juice Concentrate Study Update*

* In collaboration with the Agricultural Issues Center, UC-Davis. Funding for the preparation of this presentation has been made available in part by the Governor’s Buy California Initiative, the California Department of Food and Agriculture (CDFA) and the U.S. Department of Agriculture (USDA). The content of this presentation does not necessarily reflect the views or policies of CDFA or USDA, nor does any mention of trade names, commercial products and organizations imply endorsement of them by CDFA or USDA.

Grape Juice Concentrate Industry ProfileToday’s Discussion

U.S. Grape Juice Concentrate Supply & Demand Industry Views Price Analysis

Cost of Production Studies Summary & Implications

Trends in U.S. Trade in Grape Juice ConcentrateTrends in U.S. Trade in Grape Juice ConcentrateCompetition in Domestic & Global MarketsCompetition in Domestic & Global Markets

Factors Effecting Global Competition: Exchange Rates and TariffsFactors Effecting Global Competition: Exchange Rates and TariffsIndustry Trends and Consumption PatternsIndustry Trends and Consumption Patterns

Red vs. White GJC marketsRed vs. White GJC marketsDemand Enhancement StrategiesDemand Enhancement Strategies

Ongoing Research Areas

(-)

* Prices are calendar year averageBasis and may be greater than crop yearaverages.

*

California Grape Juice Concentrate Market Supply and Demand

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

1999 2000 2001 2002 2003

Gallons

CA GJC Production (x40 gal per ton)

US GJC Imports (non-frozen, 68 Brix)

US GJC Exports (non-frozen, 68 Brix)

US Net Trade in GJC (non-frozen, 68 Brix)

Apparent US Consumption of GJC

Data on Carryover StocksNot available

*

Industry Views

• The Market for California Grape Juice Concentrate is Mature

•While overall demand for grape juice and other fruit juice concentrates

for use in production of beverages and foods may continue to increase

unless things change most of that increase will be captured by lower priced imports (grape, apple, pear, etc)

Thompson Seedless: Crush and Prices

125

7695

200

412

605

255

490

86

3.13

1.90

2.38

5

2.15

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004

Tons/$ per Ton

-

1.00

2.00

3.00

4.00

5.00

6.00

Dollars per Gallon (@40/gal)

Thompson Crush

Thompson Price per Ton

Thompson Price GJC Equv

(380)

(432)

(215)

(260)

Estiamted White GJC Prices

0

1

2

3

4

5

6

7

8

9

2000 2001 2002 2003 2004

Dollars per Gallon

CA White GJC Price fob

Thompson Price GJC Eq

Imported White GJC

Margin GJC to Grape Price

$5.50

As of June 04

Implied Price Based on Average Margin

$7.67

Avg. of $2.67

Apparent

Selected Juice Sweetner Market (AJC and GJC)

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

1999 2000 2001 2002 2003

Gallons

GJC and AJC

AJC Imports

GJC Apparent Consumption

0

50

100

150

200

250

300

350

Million Gallons

1996  1997  1998  1999  2000  2001  2002 2003

Year

Quantity Imports of U.S. Apple Juice Concentrate: 1996-2003

 Argentina  Chile  China ROW

US White GJC 68 Bix vs. China AJC 70 Brix

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004

dollars per gallon

Chinese Apple Juice

White CA GJC

Potential Returns from Grapes GrownFor Concentrate

NET RETURNS PER ACRE ABOVE OPERATING COSTThompson Seedless for Concentrate

                 

PRICE YIELD (ton/acre)

$/ton 9 10 11 12 13 14 15

140 27 157 287 417 547 676 806

160 207 357 507 657 807 956 1,106

180 387 557 727 897 1,067 1,236 1,406

200 567 757 947 1,137 1,327 1,516 1,706

220 747 957 1,167 1,377 1,587 1,796 2,006

240 927 1,157 1,387 1,617 1,847 2,076 2,306

260   1,107 1,357 1,607 1,857 2,107 2,356 2,606

NET RETURNS PER ACRE ABOVE OPERATING + OTHER CASH COSTThompson Seedless for Concentrate

                 

PRICE YIELD (ton/acre)

$/ton 9 10 11 12 13 14 15

140 -381 -251 -121 9 139 268 398

160 -201 -51 99 249 399 548 698

180 -21 149 319 489 659 828 998

200 159 349 539 729 919 1,108 1,298

220 339 549 759 969 1,179 1,388 1,598

240 519 749 979 1,209 1,439 1,668 1,898

260   699 949 1,199 1,449 1,699 1,948 2,198

NET RETURNS PER ACRE ABOVE TOTAL COSTThompson Seedless for Concentrate

                 

PRICE YIELD (ton/acre)

$/ton 9 10 11 12 13 14 15

140 -1,541 -1,411 -1,281 -1,151 -1,021 -892 -762

160 -1,361 -1,211 -1,061 -911 -761 -612 -462

180 -1,181 -1,011 -841 -671 -501 -332 -162

200 -1,001 -811 -621 -431 -241 -52 138

220 -821 -611 -401 -191 19 228 438

240 -641 -411 -181 49 279 508 738

260   -461 -211 39 289 539 788 1,038

FOR CONCENTRATE NET RETURNS PER ACRE ABOVE OPERATING COSTS *

                 

PRICE YIELD (ton/acre)

$/ton 9 10 11 12 13 14 15

140 -7 123 253 383 513 643 773

160 173 323 473 623 773 923 1,073

180 353 523 693 863 1,033 1,203 1,373

200 533 723 913 1,103 1,293 1,483 1,673

220 713 923 1,133 1,343 1,553 1,763 1,973

240 893 1,123 1,353 1,583 1,813 2,043 2,273

260   1,073 1,323 1,573 1,823 2,073 2,323 2,573

* UC-Davis cost and returns study based on no specific variety, data refers to spur pruned varieties, such as white varieties - French Colombard, Chenin Blanc - and the red varieties – Rubired, Royalty, Salvador.

FOR CONCENTRATE NET RETURN PER ACRE ABOVE OPERATING COST + CASH COST

                 

PRICE YIELD (ton/acre)

$/ton 9 10 11 12 13 14 15

140 -419 -289 -159 -29 101 231 361

160 -239 -89 61 211 361 511 661

180 -59 111 281 451 621 791 961

200 121 311 501 691 881 1,071 1,261

220 301 511 721 931 1,141 1,351 1,561

240 481 711 941 1,171 1,401 1,631 1,861

260   661 911 1,161 1,411 1,661 1,911 2,161

FOR CONCENTRATE NET RETURNS PER ACRE ABOVE TOTAL COST

                 

PRICE YIELD (ton/acre)

$/ton 9 10 11 12 13 14 15

140 -1,598 -1,468 -1,338 -1,208 -1,078 -948 -818

160 -1,418 -1,268 -1,118 -968 -818 -668 -518

180 -1,238 -1,068 -898 -728 -558 -388 -218

200 -1,058 -868 -678 -488 -298 -108 82

220 -878 -668 -458 -248 -38 172 382

240 -698 -468 -238 -8 222 452 682

260   -518 -268 -18 232 482 732 982

Implied price range Using Apparent Margin For White GJC

Observed Implied Grape Price Margin GJC Price 140/40 = $3.50 + $2.67* = $6.17 to 260/40 = $6.50 + $2.67 = $9.17

1999 2000 2001 2002 2003 2004

6.70 5.81 4.60 4.94 4.87 7.67 est.

•The California industry has an advantage in transportation arising from geographic proximity and increased constraints on imported products resulting from increased security measures applied to imports and ocean shipping conditions.

• The California industry should market more aggressively the positive attributes associated with the health and safety standards applied by the industry (traceability), relative to imports

•Grape juice concentrate will continue to be an industry that is needed by producers as an outlet for product and by wine companies and food & beverage companies as input into production, but GJC companies will have to adjust to increasing competitive pressures from other commodities and countries and increasing cost of doing business (regulatory compliance, energy cost, etc.)

•Opportunity exist, but a shift in attitude from marketing a commodity to marketing a product with specific and unique attributes may be important

•Examine ways to grow demand working with industry on development of Alternative uses and new products

Industry Views and Implications

Implications for Growers

• Grapes “for concentrate” success depends onbeing able to produce quality, high yields, at low cost

• Grapes for other uses that can find a home in theconcentrate market need the same

• Research and development on management practicesand varieties etc will be crucial to achieving and maintainingviable production systems

• Market fundamentals suggests GJC prices are not likely to increase significantly from current levels and are linked directly to what can be paid for grapes for concentrate

0

20

40

60

80

100

M

i

l

l

i

o

n

d

o

l

l

a

r

s

1996  1997  1998  1999  2000  2001  2002 2003

Year

U.S. Imports of Grape Juice Concentrates: 1996-2003

 Argentina  Chile  Mexico  Brazil  Canada Italy  France  South Africa ROW

0

5

10

15M

i

l

l

i

o

n

G

a

l

l

o

n

s

,

6

8

B

r

i

x

1996  1997  1998  1999  2000  2001  2002 2003Year

U.S. Imports of Grape Concentrate: 1996-2003

 Argentina  Chile  Brazil  Mexico  Canada  Italy  South Africa  France ROW

0

0.5

1

1.5

2

2.5

M

il

li

on

G

al

lo

ns

,

68

Br

ix

1996  1997  1998  1999  2000  2001  2002 2003

Year

U.S. Exports of Grape Concentrate: 1996-2003

 Canada  Japan  Korea South  United Kingdom  Hong Kong  Taiwan  Mexico  Costa Rica  Panama ROW

0

5

10

15

20

25

30

35

40

45

M

il

li

on

D

ol

la

rs

1996  1997  1998  1999  2000  2001  2002 2003

Year

Value of U.S. Exports of Grape Concentrate: 1996-2003

 Canada  Japan  Korea South  United Kingdom  Mexico  Taiwan  Panama  Hong Kong  Costa Rica ROW