Cherry prices frustrate growers
Are marketers making commitments with retailers too early in the year?
The last two cherry seasons—though quite different—have left Northwest growers frustrated over their returns.
In 2009, the Pacific Northwest’s fresh cherry crop far exceeded preseason predictions, resulting in a flooded market and depressed prices. About 20 million boxes were packed, and probably another four million were left unpicked.
The 2010 season was almost opposite, with just enough fruit to supply demand and a total volume of 14 million boxes from the five Northwest cherry producing states. Marketers were criticized for making commitments with retailers before the start of the season at prices that didn’t reflect the relative scarcity of the fruit.
“I feel, as a marketer, we’re always going to be wrong,” commented Peter Verbrugge, president at Sage Fruit Company in Yakima. “We either have too many boxes, not enough boxes, too many commitments, not enough commitments. But, being a grower myself, I understand the grower side of it. We’re trying to make the best decisions with the information we have at the time.”
Making advance commitment to retailers on price has become more common in recent years in an effort to encourage retailers to buy cherries and advertise them in their stores.
“I think you have to have some level of commitment from the retailer during the peak time frames with these bigger crops,” Verbrugge said. “You want to give them some sort of a pricing range that gives them the ability to go out and know that they can put fruit on ad at a certain retail price.”
Don Olmstead, a cherry grower in Grandview, Washington, has been exploring ways to sell his cherries himself because he feels that marketers often make commitments to retailers at price levels that don’t return enough to the growers, and they do so before they know the size or timing of the crop.
“I get upset when I hear in February that the market says we’re not going to pay more than $24 a box because of the down economy,” he said. “I’m sitting there working it backwards from this. If that’s what you’re going to sell it for, I can’t even pick it.”
And if the crop turns out to be large, prices can drop further, Olmstead noted. “Maybe the market is terrible, but where do we have a right, as an industry, to come out with a price? A done price? If you’re going to presell it and do a good job for me, we need to spend a little time and figure out what price that really is. But when they’re selling something that’s barely above the breakeven point to start with, we growers need to stand up and give them guidance before it gets so ugly.”
Al Robison, a grower in Chelan, Washington, who takes his cherries to the cooperative Chelan Fruit, said sometimes the contract price is a little low, depending on how the crop comes in. “The grower has got to get in that loop and say, ‘Can I do that for $1.20 a pound? No, I can’t. I need $1.50, so that’s not going to work.’”
Verbrugge said that when negotiating prices with retailers the marketer looks at what would be a fair return to the grower based on the fruit size and a reasonable yield, and on the other side looks at what the retailer’s target selling price is going to be in the store. “It’s a balancing act,” he said.
Costs of production
Washington State University published a study of the costs of establishing and producing sweet cherries in Washington in 2009. It showed that in a mature ten-acre cherry block yielding eight tons per acre, the production costs (including picking but not packing) totaled $1,265 per ton, or $0.63 per pound. Packing and marketing costs vary, depending on the quality of the fruit, but could be $0.70 to $1.00 a pound. That means the grower needs a return of at least $26.60 per 20-pound box to break even, assuming good yields. With lower yields, as was generally the case this year, f.o.b. prices would need to be higher still.
“You start adding it all up, and selling cherries at twenty-some dollars doesn’t work,” said Mike Taylor, vice president of sales and marketing at Stemilt Growers, Wenatchee, Washington. However, it’s difficult to base the selling price on grower costs because cherries are a perishable commodity, he said. At some point in any season, supplies will exceed demand. Growers have to be able to make it on the averages.
For the 2009 season, the average f.o.b. price for Bing cherries (all sizes) was $26.26 a box, according to the Washington Growers Clearing House Association. For dark sweet cherries, the average was $25.95. In 2010, the Bing average was $40.13 a box, and dark sweets averaged $38.55.
But Taylor does believe that marketers are making commitments to retailers too early. During the 2010 season, they had already accepted prices with retailers before heavy storms hit the Pasco and Mattawa areas on June 2. “We had gotten the price too low, too early, before we had picked a lot of fruit,” he said.
Retailers need a commitment that they will be able to buy a certain number of loads or boxes in a certain time frame and want to price it out, he said. “But they don’t need to price it out so far in advance. We release the price too early and leave money on the table.”
Taylor thinks the industry should consider setting a price release date.
“Maybe we could say for the Fourth of July promotions that the industry wasn’t going to release a price until June 1. That way, we would be much more likely to release the appropriate price. There’s a correct price for every year, but the further out you try to call it, the more you’re going to be wrong.”
Taylor said every marketer wants to serve the best customers and rush to be the first to give them a good price. “But sometimes, the people who go first have the least amount of information and we get things priced improperly and it affects the grower.”
Bruce Grim, manager of the Northwest Cherry Marketing Association, said the association was set up almost ten years ago to enable marketers to discuss price and supplies so they have good information about what’s going on in the marketplace and can make better decisions. It was established under the Capper-Volstead Act, which gives agricultural producers exemptions from antitrust laws.
Grim said he did not know if the act would allow growers to set a date for releasing prices. “If we determined under the act that we could do that, it would be worth discussing. The closer you can get to knowing what your supply situation is going to be, that will certainly help you set a more logical and reasonable price.”
He doubts that the industry could have set the price high enough last season because of the low yields they had overall.
The WSU Extension fact sheet “2009 Cost Estimates of Establishing and Producing Sweet Cherries in Washington” can be downloaded from www.farm-mgmt.wsu.edu/treefruits.htm.