In many respects, fiscal 2006 was similar to fiscal 2005. Although the 2004 crop was the largest we’ve handled in this cooperative’s history, the 2005 crop was abundant, as well. In addition to processing large crops, both years saw us working through organizational and facilities changes, dealing with the challenges of increasing competition, and facing the financial impacts of rising energy costs. As we ended fiscal 2006, we accomplished a number of our goals and were able to return a profit to our grower-owners for the 14th consecutive year.

We began the year with a larger than preferred concentrate inventory from a record large crop. Our sales executives and planners worked closely together to process yet another large crop, while efficiently managing inventory levels. By year-end, we had successfully processed and sold through both the carry-over inventory from the 2004 crop, as well as most of the inventory from the 2005 crop. As we begin fiscal 2007, our inventory is low and we are in a good position to efficiently process and manage what has the potential to be yet another large crop.

Late in the fiscal year, we completed the asset consolidation we began near the end of fiscal 2005. Closing the Milton-Freewater facility and relocating its lines to other plants, as well as building the new Fresh Slice facility in Selah, was a significant undertaking. As anticipated, it had a short-term negative impact on our overall efficiency, as we made changes in equipment and line layouts, worked through the fine-tuning of equipment and systems, and overcame the learning curves associated with new processes. Having completed those transitions and worked through each processes’ initial season, we expect to begin to see greater efficiencies in our operations this coming year.

The rise in energy costs continues to be a concern. Over the past two years, energy prices have significantly impacted our profitability. In fiscal 2006, costs were up $5+ million; that’s a two-year total of over $8 million in additional energy costs. Increased costs impact our operations costs through more than just our actual energy usage bills, but also in packaging costs. For example, our bottles are made from PET, which is made from a petroleum-based resin. As the year ended, we began to implement price increases in our products as a result of the increase in energy and packaging costs, as has the rest of the industry.