Commodity Report: Challenges with Cherries
5/27/2020
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Michigan’s revered tart cherry industry is facing many challenges, both short- and long-term. Back-to-back years of low crop prices are weighing on growers, who now face even more challenges with COVID-19 and recent freeze events.

 

A large, stored and mostly frozen, tart cherry inventory is weighing down prices, while imported products are further escalating the oversupply. The industry struggles to balance supply with demand through the Tart Cherry Federal Marketing Order, which establishes a percentage of the harvest for the free market, while restricting the rest through diversion – meaning the crop does not get processed, or it can only be used for special uses. The idea is to stabilize prices and provide a consistent supply to the market.

 

Growers wanted the order because with more than 70% of the nation’s supply grown in NW Michigan, virtually the entire tart cherry crop could be devastated by one bad storm or be flooded with a good year.

 

However, in recent years the Optimum Supply Formula used by the Cherry Industry Administrative Board (growers and processors) to establish the restriction has been swayed by an influx of imports, challenging its effectiveness.

 

It’s been an ongoing issue, largely starting after the 2012 freeze that decimated the entire domestic crop, leaving processors looking to imports to fill the void. The ever-globalizing marketplace has allowed imported product to enter the U.S. largely duty free at low prices. In a push back, cherry processors filed a lawsuit, and in September of 2019 the U.S. Commerce Department determined dried tart cherries from Turkey were being subsidized and sold at less than fair value.

 

That ruling held until mid-January 2020, when it was reversed by the International Trade Commission when it determined there was no material injury. The antidumping and countervailing tariffs (up to 648%) implemented after the initial ruling will now have to be returned.

 

Pandemic impact

The coronavirus brings a whole new set of worries and challenges. Because of COVID-19, the cherry industry is suffering like other industries that rely on restaurant and other food service sales. “Our processors who sell primarily into food service have taken a hit, but are hopeful things will pick back up once the economy opens up,” says Mollie Woods, director of the Michigan State University Extension Product Center and was, up until April of this year, the executive director of the Cherry Industry Administrative Board (CIAB).

 

“It has been somewhat offset by an increased demand for products people prepare at home,” she adds. “I know many of our canners have seen an increase in demand, but the limiting factor is getting cans. Those can orders are done yearly, and all of sudden you’ve got this big increase for tin, and it’s just not out there.”

 

Any extra cans on the market are being purchased by vegetable canners, according to Woods.

For processors in the retail market for frozen foods, including cherries, sales have been pretty good, she adds. “But, when we get into food service packs, which we do a lot of, that is where we are struggling some.”

 

Dorance Amos, who farms 1,100 acres of soybeans, wheat, tart cherries (300 acres), sweet cherries (55 acres), and apples (265 acres) in Grand Traverse and Antrim counties, has other concerns brought on by the pandemic. “I fear the effects of COVID-19 with the disruptions in markets and labor availability,” he says.

 

While harvesting tart cherries is almost exclusively done mechanically, processors are worried about getting enough seasonal labor to move the fragile and highly perishable tart cherry crop through the system fast enough. Through the H-2A guest-worker program, Amos can hire workers from other countries on temporary work permits for agricultural jobs not filled by American workers. He’s gotten two workers so far, but wonders if the situation with the coronavirus will prevent him from getting the additional 20 he needs this fall.

 

No festival

The pandemic has also resulted in cancellation of the National Cherry Festival in Traverse City. “This is the first time in 93 years there will be no festival,” says Kat Paye, executive director of the National Cherry Festival. “It’s really a shame because the festival celebrates growers, cherries and the community,” she adds, while noting that other events, like the Film Festival and Up North Pride, are also canceled.

 

The cherry festival is a week-long event starting the first weekend of July, and has a $26 million economic impact annually, according to a 2016 study.

 

“Cherries are still going to happen here in northern Michigan,” she says. “We are encouraging people to still purchase cherries and wonderful cherry products like cherry sausage, cherry jerky, chocolate-covered cherries, dried cherries, cherry pies and more.”

 

Southwest badly hurt

The freeze events hit hardest in southwest Michigan, according to Mark Longstroth, Small Fruit Michigan State University Extension educator. On May 9, in an area between Paw Paw and Lawrence, it dipped below 20 degrees for three hours, he says.

 

“If growers were closer to Lake Michigan, they were warmer – at 25-27 degrees,” he adds.  “Those that got a little breeze off the lake, like southern Berrien County, were not hurt as bad. It’s real spotty, but for tree fruit in the southwest region, most of the injury is between Kalamazoo and Benton Harbor. Cherries were already hurt by an April 16 freeze when they were in swollen bud.”

 

Amos says he’s hearing the crop was pretty, “brutalized from Grand Rapids south.”

 

For the northwest, which also got an unseasonal arctic blast but was further behind in crop development, he expects injury and losses, but there will be something worth harvesting. “Sweet cherries were just starting to puff up and not at bloom, but we are seeing injury,” he says.

 

Amos predicts he will lose upwards of 50% of both the sweet and tart cherry harvest after temperatures reached as low as 21 degrees on part of his farm, May 8 and 9.

 

Third-generation cherry and apple grower David Meister farms north of Manistee in Onekama. “At this point, I don’t know the extent of the damage, but I expect to harvest less than 50% of the crop,” he says with frustration.

 

Meister says he’s beaten down by the freeze, but even more so by the marketing order. “It doesn’t take into consideration imports and restricts our cherries unfairly,” he says. “It’s almost impossible to make a profit in this industry; I subsidize my farming habit with two other jobs.”

He’s got some 26-year-old trees he’ll push out after the season, but he’ll also remove some 10- and 5-year-old trees that are in their prime.

 

However, most of the industry still supports the marketing order, as an April 1 referendum passed, extending the order for another six years. The order not only allows for a restriction, but also allows for collective marketing efforts to promote and advance the industry.

 

A report from Michigan State University found the tart cherry industry brought $91 million dollars to the state in 2016, but has been declining quite rapidly.

 

The Cherry Industry Administrative Board (CIAB), will convene in June for its annual pre-harvest forecast of poundage in each of the seven growing states, which will be used in the formula to potentially set a restriction.

 

Mixed reaction

The freeze comes with mixed reaction. John Jones, GreenStone Farm Credit Services Senior Vice President of Commercial Lending, says the supply-demand outlook for most growers may improve with the freeze shortening crop. “While the freeze may have severe short-term consequences, a reduction in overall inventory levels may be positive in the long run,” he says. “It could change the supply-demand picture to the point the price outlook might improve, but it’s really too early to tell.”

 

Crop insurance, which can cover up to 80% of production, will help growers offset losses. “The portion of the crop a grower might lose could be offset in part by insurance proceeds, reduced harvest costs and higher prices,” he says. “It will likely not make them whole, but crop insurance provides growers with options to limit their downside risk when weather events like this occur.”

 

However, MSU’s Mollie Woods warns that there is a lot of inventory to sell yet, “and it has to work its way through the system before there’s going to be a big change in market demand,” she predicts.

 

The good news, she doesn’t expect imports to displace the domestic stored cherries. “Most of our (Michigan’s) storage is frozen, and we don’t have a lot of frozen imports.”

 

USDA purchase

USDA recently announced it will buy $20 million in dried cherries for school programs and food assistance programs.

 

“It will help, but USDA will only buy product from 2018-2019 crop years,” grower Amos says. “Most will be taken out of frozen storage and dried. The processor will get his costs covered, and maybe the return to the grower could be 3.5 cents (per pound), possibly. It’s a bail out for processors who have been sitting on large amounts of inventory, but very little, to no help for growers.”

 

While the industry chugs along, albeit injured, Woods says her biggest fear when the market tightens is current cherry buyers will drop cherries out of their product mix. “What’s very scary for me is the possibility of losing market share to other fruits on the frozen side,” she says. “We really need to concentrate on developing innovative products – new products for schools, retailers and food service.” ~

 

 



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