Mother Nature provided a significant supply correction with an estimated crop US crop of 8,260,000 bbls, down 880,000 bbls from the CMCs projection of 9,141,000 bbls. That is about a 10% drop. One handler thought this was the largest crop decrease since 1976! Every single growing area was level or down, both within the US and growing areas not covered by this order. Worldwide, the crop is estimated to be down 1,560,000 bbls.
When the CMC voted for an order in August, they had projected that a 15% order would reduce the US crop by 915,000 bbls. So poor growing conditions/weather did most of our work for us. Based on that information, the committee discussed the other items introduced in the Proposed Order by the USDA. The committee had recommended that every handler receive a 125,000 bbl exemption, so in other words the first 125,000 bbls of a handle is exempt. The USDA’s proposal is that handlers below 125,000 are exempt and those above are not exempt. This affects only 7-8 handlers out of the 60 total handlers and affects the smaller of these handlers disproportionately as they can’t spread the cost of disposal over as many barrels. There were many comments as to the fairness of the proposed changes. Take for example a 300,000 bbls handler. With the CMC proposal he would have had to dispose of 300,000 bbls – 125,000= 175,000 bbls x .15%=26,250 bbls disposed. Under the proposed USDA plan that same handler would have to dispose of 300,000 bbls x 15%=45,000 bbls. The difference is significant. If the proposed USDA plan is enacted it would take another 1,000,000 bbls off the market in addition to the 880,000 bbls that naturally came off the market.
Besides the 125,000 exemption, the other significant change made by the USDA was the addition of “Any handler who does not have carryover inventory at the end of the 2017-2018 year would also be exempt” and ” Further, only handlers who would have carryover inventory that is not sold or under contract and the end of the 2017-2018 fiscal year would be subject to the 15 percent restriction” to the order. There was much discussion on these provisions imploring the USDA to provide guidance on what is define what is “sold” and “under contract”. The industry needs a certain amount of “pipeline” that is in our projections to get the processors from one crop to the availability of the new crop, which allows the processing plants to run efficiently and continually. Do we have more than the necessary amount of carryover as an industry. Absolutely, hence the request for a marketing order. But to make handlers prove their sales or contracts to prove they are in balance without carryover seems like an exercise fraught with problems. The addition of this wordage was probably intended to have the handlers with the most inventory subject to the order, and has numerous problems in application.
In the end, the CMC could only review the Proposed Order and make recommendations. In consideration of the large amount of decrease in fruit provided due to growing conditions, the CMC recommended to the USDA that the Volume reduction be reduced from 15% to 5%. This amount is estimated to take another 320,000 bbls out of the supply.
The USDA representatives were engaged and listened intently to all of the presenters and commentary. It was by no means a negotiation or give and take. They suggested that everyone make these same comments to the Federal Register. The comment period is open until February 2, 2018