CHICAGO — Following the initial discussion of USDA’s apple forecast, Welcome Sauer, a retired tree fruit industry analyst, and West Mathison, president of Wenatchee, Wash.-based Stemilt Growers, led a review of past figures as well as a look ahead during the U.S. Apple Outlook conference.
With the USDA estimate showing about 290 million bushels of apples expected (USApple has projected a smaller crop of 278.5 million bushels), Mathison kicked off his portion of the presentation saying, “At the end of the day, we know the answer, so we can either do it by choice or by force.”
The answer, Mathison says, is how does the industry get to 125 million boxes, which given the current expected crop, is about six weeks more of inventory than what the market needs.
“I would always say we don’t have a demand problem,” he says. “We have a supply problem, and a supply problem is a management problem.”
A Look Back
Both Sauer and Mathison provided some historical data to help frame the conversation about where the U.S. apple industry needs to head and the tough decisions and conversations that it must make in the near future.
Using data from the Washington State Tree Fruit Association, Sauer says he sees clear rises and falls in demand for varieties such as gala, red delicious and fuji and stabilizing for granny smith and Honeycrisp.
He says the challenge is that galas and fujis, once varieties in demand, have remained in the ground as newer varieties have come online that capture the consumer’s eye.
“We have a flash where we have new, incoming, highly craveable varieties of high market-clearing prices competing with and adding more competition to varieties that have not yet come out of the ground,” he says.
Sauer says this is no different than times when growers were bullish on Winesap or red delicious as galas and fujis began to take off. Tracking the demand curve for gala shows the peak hit around 2016, but economic demand for the variety began to slip in the years since, he says.
“The market is saying we’re not so willing to pay as much for that as we used to be,” he says. “This is not an unusual case. We’ve watched red delicious and golden delicious over the last 20 years shift, and gala has now started that same trend.”
Sauer says he sees similar tracking for fuji, but what’s interesting with fuji is what he calls a “substitution effect.”
“Fuji is taking the brunt of the competitive effect of other new apple prices and other products in the marketplace,” he says. “We’re producing less but also selling it for less.”
Highlighting Cosmic Crisp, Sauer says it’s had a different growth trajectory.
“Prices fell very rapidly, and I think what’s happening here is we’re outproducing the growing level of demand for this new variety,” he says. “We’ll see what happens in the future if this current demand catches up with our supply.”
Using 2014 as an example, Mathison says that despite Washington picking 142 million boxes, growers made money thanks to varieties destined for the export market. But a strong dollar has caused a shift in the export market.
“Since 2014, our foreign customers have lost purchasing power by 25%, and also now that the U.S. is the reserve currency for the world, that’s not going to get better,” he says. “I looked at my own orchards; the farmgate breakeven cost since 2014 is effectively doubled.”
He says this breakeven cost increase, coupled with less purchasing power for trading partners, has caused a shift in exports.
“If we look back to the ’14 crop, our record was 28 million boxes went offshore, and for the 2013 crop, only 17 million went offshore,” he says.
The other thing Mathison says has shifted is that 52% of varieties grown in 2014 were exportable; in 2023, 52% of varieties are not destined for the export market, which causes growers to ship them at low prices.
“Washington has effectively been dislocated as a lower global supplier of apples, where we really enjoyed that position with these great ports and being close to the Pacific Ocean,” he says.
A Look Ahead
Mathison says that he says the industry is running out or runway to adjust. With the industry in its fifth year of Whole Farm Revenue Protection, growers will start to see banks calling on loans, not renewing lines of credit; institutional buyers have stopped buying orchards and growers may have utilized a one-year exemption on bankruptcy. And alternative lenders have delayed the inevitable: acres need to come out.
“Those are the things that have kind of delayed and pushed this thing to effectively, what I think will be more of a cataclysmic event versus this slow erosion,” he says.
Mathison also reiterated the talking point that could be the theme of this year: The crop size is not how many acres are on the trees, but how much crop the industry packs.
“I think this ’25 crop could be in the bottom,” he says. “’[2026] might be a little bit better, but not much. I think we will expect large orchard removal starting after this crop year.”
Mathison says getting to the 125-million-box crop size in the U.S. will be about the varieties planted, the orchard location and the horticultural abilities of the grower. Growers in fringe locations that have difficulty producing high-quality fruit will struggle.
“Only the best orchard is going to go forward, and they need to find the best pathway to market,” he says.
And what is that best pathway? Mathison says it’s a balance of crops — apples, pears and a “sticky” commodity that is relevant to consumers, perhaps something like cherries.
“If I’m a Michigan or New York shipper, they grow good galas, good Honeycrisps and good fujis, and they have $5 to $8 cost advantage. So, if I’m a Washington marketer, I’m going to under-index on fujis, galas and Honeycrisp, because it’s very hard to compete against these great growers in Michigan, New York,” he says. ‘And if I’m a Washington marketer, I’m over-indexed in granny smiths, Pink Ladies and Cosmic Crisp and more organic.”
Sauer says if growers see their orchards as factories and look strictly at the numbers, only 40% of what growers grow is in the rates and sizes the market wants to buy, or in the “money zone” as he calls it.
“About 60% of what we produce is a byproduct, something that the market doesn’t really want to buy, and it’s like pushing like spring uphill on the sales desk to move those items,” he says.
Getting that 40% figure up would take major grower investment, but he says, “There’s room for improvement. Just by measuring something and paying attention to it, we’ll find solutions.”
Mathison says that grower-packers also need to see where those efficiency gains can be made. He says it’s hard to cut costs on the farming side, but the postharvest side can make a huge difference through day and night shifts and automation.
“With the automation that we have, we run a day and night shift. There’s a lot of facilities that are running, 8 [million] to 15 million packages a year and run day and night shifts,” he says. “We’ve been able to take a lot of cost out of the postharvest side of the business. ... We have to think about how we drive our velocity of activity for our fixed assets on the postharvest side.”
Mathison says his family has seen many changes in the industry over the years: the change from boxes to bins, variety shifts to from traditional varieties to then newcomers gala and fuji, the shift from semidwarf to high-density orchards, stickers on apples and the addition of controlled atmosphere storage. While each era caused a shift in acres planted, the industry continued and rebounded.
“Washington has a very bright future,” he says, noting the state’s infrastructure, soils, irrigation, human capital, research facilities and markets for U.S.-grown apples.
“Day will follow night,” he says.
