At the completion of the Salinas 2021 season, the grower-shipper community performed their detailed financial post-mortems of their seasonal performance. Nearly all already had a good handle of what their bottom lines would reveal after underwhelming commodity pricing for the bulk of the season. Spoiler Alert: marginal to poor results.
With residual of COVID continuing to impact normal purchasing patterns and beginning signs of rising inflation, supply chain challenges and ultimately end-to-end cogs increasing costs ultimately impacting finished commodity costs.
Based on several key indicators, with core profitability being the primary indicator, many shippers chose to reduce their weekly commodity volume requirements of their typical Salinas vegetables offering. They did that in order to better align with buying trends and downsize their offering volumes to limit excess volumes.
The expected result of volume reductions of typical Salinas vegetables had the expected associated effect on acre planting requirements. An interesting, and maybe not so unexpected development, occurred during the fall of 2021. Tri-County was approached by several central San Joaquin processors hungry for water to produce their crops due to severe drought conditions resulting in limited ag water allocations.
For some growers, this opportunity presented an option to cover some acres. Time will tell if growing CSQ commodities will become a trend to build upon. As such, it appears that the 2022 Salinas Valley vegetables acre production has been reduced from 2021 levels. Although it is too early to quantify what the aggregate vegetable acre reduction numbers will be.
As May gives way to June, this marks the completion of the first third of the summer Salinas growing season. Driven primarily by mild spring weather and favorable growing conditions, early season yields and quality has been exceptional. Be it conventional or organically grown, from brassicas to baby spinach, iceberg lettuce to Romaine hearts, front-end season quality has shone. The early yields and quality are encouraging in the face of significant disease pressures over the past seasons.
Another positive thus far is that disease pressures that the valley has been contending for the past five seasons has had minimal impact on yields. Cooler dry early season weather as well as growers implementing recent historical learning curve knowledge in defense of their crops, are helping.
The commodity market conditions for the spring have been decent from historical perspective. And if the finished packed commodity break-evens were at pre-pandemics costing levels, growers and shippers may have been profitable on early season crops.
As has been chronicled, however, inflationary cost increases have risen, turning the finished packed commodity break-evens from pre-pandemic levels from 12% to 18%. The normal summer challenges and competitive factors will soon be impacting valley vegetable demands. The summer stonefruit, grapes deals as well as other items such as corn and melons, which retailers promote extensively during the summer, will be starting in earnest.
As these popular summer commodity production volumes begin, so does the competition for transportation. As witnessed over the past two years, COVID has had a dramatic impact on not only the pricing for trucks, but simple availability, has been challenging as best.
Transportation has possibly had the hardest impact on the supply chain and, quite frankly, one that may not return to pre-pandemic levels. With the sustained surge of nonperishable home deliveries via the likes of Amazon during the past two years has given the truckers business options not available historically.
To haul a nonperishable truck load of “widgets” without the liability risk at a more profitable rate or haul a perishable load with potential assumed perishable risk at a lower rate. These factors make West Coast vegetable summer cross-county over-the-road hauling another hurdle to manage.
To that end, east of the Mississippi retailers continue to expand their regional vegetable sourcing options. They do this for obvious reasons. The laid-in costs of fresh fruit and vegetables, not from an FOB perspective, but from freight savings.
From a PR perspective, retailers can advertise that they are supporting their local neighbor grower. Retailers use local sourcing as a platform to espouse social responsibility, such as reducing their carbon footprint. Lastly, they can maintain high margin on these offering while savings on their inbound costs.
The Salinas summer season still has two-thirds remaining and there are reasons for guarded optimism. With the reduction of acres, it may set up conditions for a run of solid pricing that could prove profitable. Factors such 40-year high surging inflation could impact how the season plays out, so this remains to be seen. At the end of the day, the growers will continue to focus on what is within their scope of influence: To stay vigilant of their crop production while and more so on their costs, with the guarded optimism of profitable markets.
