Ripe for increase: Pizza sauce prices to rise by 25%

When higher bills for pizza sauce come next year, blame the increase on the weather in 2006.

An unusually wet spring in central California delayed tomato planting for the process crop, which could reduce the final harvest by as much as 15 percent.

According to Ross Siragusa, president and chief executive of the California Tomato Growers Association (CTGA) in Stockton, Calif., planting should have begun in the most-northerly end of the state's tomato fields by mid-March, but it didn't until later in April.

The CTGA predicted an 11.6-million-ton harvest in 2006, but it's since lowered that to 10.3 million tons. Fully 95 percent of the process tomatoes grown in the United States come from California.

This year's delay produces potentially three negative scenarios, Siragusa said. To ripen fully, tomatoes need the summer's peak heat, which late-planted fruit likely will miss. Secondly, tomato processing plants are scheduled to run 24 hours a day for weeks at a time and on well-choreographed plant-and-harvest schedules. If those schedules get out of synch, too much fruit can ripen at once and it's likely some will be left in the field to rot. Lastly, there are a limited number of trucking crews to haul the fruit from the fields to processors, and any shortage there could cause problems.

"You've got to have two things happen if this is all going to work," Siragusa said. "All the processing plants have to run perfectly, and you have to have spectacular weather. But frankly, I don't think that's going to happen."


What's Important

A rainy spring in California slowed tomato planting by weeks. That should reduce this year's crop size and cause prices to rise by 25% in 2007.

For once, cheese prices won't get the blame for high food costs. Strong dairy supplies will keep prices low for the foreseeable future.

Prices for beef, chicken and pork should remain steady for the next several months.

processors already faced tight supplies coming off a smaller-than-expected crop harvested in 2005. So with paste supplies tight, concerns about upcoming shortages have lifted prices about a dime.

"We've seen the price for 2005 average around 28 cents a pound, but with supplies so thin, what's left from last year is going at 38," Siragusa said. The inter-harvest price increase has left some buyers wishing they'd bought earlier. "A lot of business was contracted in the 34 cents to 36 cents range, but some big players didn't want to pay that. So some, in an ill-advised fashion, decided to wait, and they're paying for it now."

If paste holds at 38 cents, that should net a per-case price increase of $2.50 to $3 for pizza operators. But don't blame all those increases on the weather, said Monte Manguno, vice president of marketing for Paradise Tomato Kitchens. High energy prices are being tacked onto tomato products costs as well. Paradise uses plastic bags to store its sauces, and its costs for cardboard shipping boxes have increased multiple times.

"It's one thing when the cost of boxes goes up 5 percent, but when it's followed by another 5 percent and then another 5 percent, it adds up," Manguno said. "You can't get any more blood out of the turnip at this point, so that cost has to be passed along."

Manguno doesn't expect sauce prices to stay elevated forever. Higher prices will lead more tomato growers to plant an even larger crop next year and ultimately, supply will exceed demand and send prices southward.

"If you look at paste prices for the past 40 years, you'll see they've gone down overall," he said. "You'll also see that about every two to four years, prices go up and then come back down. History just always seems to repeat itself."

Meats of the matter

Prices for beef, pork and poultry have increased steadily for the past two years, but experts predict them to stay firm for the foreseeable future.

Don Seaton, trading manager for Burke Corp., a manufacturer of fully cooked pizza toppings and meats, said U.S. beef supplies are more than ample, and that prices for trim cuts used to make toppings actually have declined slightly in recent weeks.

"We're seeing that market going down, so we should enjoy some fairly good trim prices for the time being," said Seaton. "You'll see little seasonal increases, some ups and downs, but that's really of no concern."

The USDA also predicted beef prices overall will remain flat or decrease by 1 percent this year.

Even though Japan green-lighted U.S. beef imports in mid-June, Seaton doesn't expect prices to rise because of ample supplies at home. Japanese buyers also tend to favor higher-priced, higher-margin cuts, and that has, historically, allowed meat packers to focus less on below-choice cuts to drive profits. In the coming months, operators who use cheaper cuts may pay less for them.

Continued demand for pork in Pacific Rim markets is likely to keep domestic supplies in balance and prices in check. Seaton said late spring hog numbers were a bit high, and that threatened to pressure prices. He expects, however, that any marginal decreases will be offset by hot summer weather — heat can put hogs off their feed and reduce their weight — and seasonal pork demand by residential grillers.

A weak export market and strengthened U.S. poultry

start quoteYou've got to have two things happen if this all is going to work. All the processing plants have to run perfectly, and you have to have spectacular weather. But frankly, I don't think that's going to happen.end quote

— Ross Siragusa, President, CEO, CTGA
supplies have led to some price declines as "everyone goes to their freezers" to clean out excess inventory, Seaton said. "That extra supply got prices down enough to where people would start to pick it up at the stores." To counter the build-up, poultry producers spent the late winter and spring reducing breeding and slaughter rates.
Reports are mixed on the potential impact avian flu could have on the U.S. poultry market. To date, the disease hasn't spread to North America through migratory birds, though some believe it's only a matter of time.

Other officials claim the foodservice and poultry industries are well prepared to handle a potential outbreak.

"I think everybody's put in a lot more controls to make sure that if something happens, you're not going to have a big problem," Seaton said.

One Harvard University study claimed poultry consumption in America would drop by 46 percent if avian flu spreads here, but a spokesman from the National Chicken Council (NCC) said such gloomy forecasts currently are unwarranted.

"It would be very difficult for this disease to spread to the U.S.," said Patrick Pilkington, who spoke on behalf of the NCC during a webinar presented by Nation's Restaurant News and Ecolab. "To make a prediction of if or when that should occur would not be a smart thing to do."

Cheese, these prices are nice!

Dairy analyst Jerry Dryer isn't forecasting any significant changes in cheese prices for the near or long term. Extended periods of hot, dry weather can reduce milk output and lower feed quality, but at present, both the nation's dairy herd and the supply of forage are fairing fine.

"The only caveat I'd throw in is whether something bizarre occurred with the weather," said Dryer, editor of Dairy & Food Market Analyst newsletter. "But that product will be there unless something really goofy happens."

Pizza operators have enjoyed months of low prices, and even the most pessimistic reports set block cheese prices near or slightly above $1.30 per pound in the fall, when school demand for milk tightens supplies. No one expects the market will return soon, however, to the record highs registered in 2004, when blocks traded at $2.20 per pound.

Dryer said the nation's dairy herd is not only strong enough to exceed demand, more than enough replacement cows are available to replace those culled. Plus, where slaughtering cows has been profitable in the past, an oversupply of beef is flattening prices and pressuring dairy farmers to keep their animals.

Strong demand for mozzarella, Dryer said, is good news for pizza operators, as it reflects the current pace of business in the segment. He said renewed demand from other restaurant segments may draw down some cheese inventories, but not enough to send markets hurrying north.

"The value menu that places like Wendy's and McDonald's have essentially dusted off and ramped up, they're doing a lot of business (because they're) very cheese friendly," he said. "Process cheese is made from cheddar cheese, and that's the one commodity that does trade at the exchange. It's the one we measure everything against."

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