Get rid of poor-yielding orchards
It's a mistake to keep an unprofitable block just to help cover overheads, says grower Dave Allan.
If your orchard produces low yields or fruit that ranks in the bottom half of the warehouse pool closings, then it's time to make some changes because the orchard may not be economically sustainable in large-crop years when returns decline, Yakima, Washington, orchardist Dave Allan told growers at the Washington State Horticultural Association's convention.
"I think the red flag is any orchard that's getting 30 bins per acre or less. If you can't fix that, you've got to get rid of it," he said. "The only exception would be a high-value crop, for example, Honeycrisp. In general, 30 bins per acre will just kill you."
Another red flag is if the orchard produces small Red Delicious, Golden Delicious, or Granny Smith apples, he added. "You've got to take a good look at what you're doing and either fix it horticulturally or remove the block. You've got to make some decisions."
Looking at the average returns for apples over the past decade, Allan noted that Washington State typically has a poor marketing season when the crop size jumps significantly from the previous year (see " apple production affects price"). Returns were disastrous for the 2000 and 2004 crop years, he recalled, because the industry did not have the marketing capacity to sell the crop at a profitable level.
It's possible that Washington will produce a 120-million-box crop next fall, he believes. In 2008, the state produced 113 million packed boxes, even though many orchards in Yakima had much less than a full crop.
"A 120-million-box crop, I think, is within the realm of possibility," he said.
If 2009-2010 proves to be a dismal marketing season, growers will need to find ways to mitigate the problems, he warned. One way is to try to maximize the amount of target fruit per acre. Target fruit is high-quality fruit that brings the highest returns. Allan noted that there can be as much as a 70 percent difference in price between the top fruit and the bottom fruit in a warehouse pool.
Blocks that produce low yields of poor-quality fruit should be removed, Allan said, even though bankers and administrators may argue for keeping those blocks to help cover overheads.
"I think that's one of the biggest fallacies in our industry," he said. "It's a big mistake to leave a block to maintain overhead."
Packers also might think they need to maintain orchards in production to cover their overheads, he told the audience. "I want you, if you're a warehouse person, to remember what it's like on October 15 and we're in a big year and you go out to the bin pile and there's no more bins. You don't need to carry these loser blocks because you've got to cover the overhead. That's a bad thought process, I guarantee you that."
Allan calculated that typical production costs for an acre of orchard are $6,655. That works out at $133 per bin if the yield is 55 bins per acre, $181 for 35 bins per acre, or $110 per bin for 75 bins per acre. With a 120-million-box crop, apples might return $110 a bin, resulting in a significant loss if yields are only 35 bins per acre. "You're going to take a beating of $60 a bin on that product," Allan warned.
In a poor pricing year, bankers might encourage growers to cut costs, and often the pruning and tree training get cut because it's difficult to make any significant cuts elsewhere, Allan said. ever, it's through pruning and training that growers can improve their crops.
"The bottom line is you can't save money by saving money on the orchard operation," Allan said.
Instead of sustaining further losses just to cover overhead, growers would be better off investing that money in replanting—even though it will cost more to plant the new orchard, Allan said.
"You have to remove those blocks that are not producing the quality and volume of fruit that you want, and that's the only way you can save money in existing orchards. Get rid of your losers. Give them one last hug and pull them out," he suggested.
"You're better off three years down the road because you remove those junker orchards and you're now on your way to some real potential income."