Around the Table

May 2, 2006 - 10:11

Where do you get your fuel?

“We work with a broker who deals with other area nurseries. He has five or six growers that actually hedge natural gas. The rest just buy through their utility or they may nominate gas through him. When you get to the significant months, if you don’t nominate, you could have a problem with the amount of gas available to purchase. You don’t want to run into that issue.”

— L.J. Contillo, production manager,
Costa Carolina, Ashville, N.C.

“On the greenhouse side of it, we’re buying open-market gas as well as contracting out. We work with a gas broker who assists us with that. We’re monitoring it real close to find the right source.”

— Tim Stiles, president,
Masterpiece Flower Co., Byron Center, Mich.

What about retailer price breaks?

“We get some, but it takes a lot of discussion, preplanning and information sharing. It depends on which retailer you’re working with and how open they are. We’ve had some success both on their retail and our cost but it barely covers the increased costs. We try to understand their point of view because they’re dealing with the same issues. I think we’re all realizing everyone has to make a profit to exist. ”

— Tim Stiles, president,
Masterpiece Flower Co., Byron Center, Mich.

“Our salesmen have been able to raise some prices — not everything. You have to raise prices. There’s no way around it. There are no margins to absorb the any of this. We are raising prices, but we’re also trying to conserve energy. “If the stores want you as a supplier, they have to go along with you. The smarter buyers are recognizing that. Some of the other buyers don’t seem to care. We’re up against the wall. We either get some price increases or we go out of business; it’s that simple.”

— Jim Leider, owner,
Leider Horticultural Cos., Buffalo Grove, Ill.

How do you monitor fuel prices?

“We watch it extremely closely. It’s a daily thing; we’ve got our financial department involved in it, and we’ve got a consultant on it. I’m not an economist. I do know some, but it’s more like playing the stock market.”

— L.J. Contillo, production manager,
Costa Carolina, Ashville, N.C.

“Every week. And not just heating oil. We’re monitoring for trucking because we pay a fuel surcharge to drivers. We pull the Midwest average every week right from the Department of Transportation Web site. We base our fuel surcharge on that.”

— Tim Stiles, president,
Masterpiece Flower Co., Byron Center, Mich.

“We’re checking it every week, looking at what’s in reserve. You could see that this market was a bubble and was going to collapse because there was so much gas in storage. Then we had a mild winter. If we’d had a cold winter, this bubble may have continued on for a while.”

— Jim Leider, owner, Leider Horticultural Cos., Buffalo Grove, Ill.

Did you lock in pricing for 2006-07?

“We’ve already locked some of our fuel for the fall, and we did it based on security. We just bought it in January, when the market stumbled a little bit. We paid an enormous price last year and in locking some of the fuel, we can bank on the fact that we can have a 30-40 percent reduction in cost over what we paid last fall. Right now, we’re buying about a year out; we don’t buy years in advance on futures.”

— L.J. Contillo, production manager,
Costa Carolina, Ashville, N.C.

“We do lock in pricing. It’s very much a layered approach. We look at next year’s heating season and take it in slices. For example: If in a month we used 20,000 mcf of gas, we may book 5,000. We take a look at it again in 30 days, then put on another layer of, say, 5,000. What you get to is the blend, your average cost.

“We’ve been looking out a year. Sometimes, I think maybe we should do more because we plan on being here longer. It’s just so doggone uncertain Á with those things. Our crystal ball is no cleaner than anyone else’s. It’s just a matter of paying attention and taking advantage of what you think is a good pricing opportunity when it comes around.”

— Tim Stiles, president, Masterpiece Flower Co.,
Byron Center, Mich.

“We did a few years ago. We locked a lot of it in. Now, the futures market gets so high that it got away from us. We ended up buying just on the market. I think in December it hit a high but then came down. It worked this year. I wouldn’t recommend it always.

“We thought maybe we made a big mistake by not locking in prices at $10, $12, and it turned out we were better off buying on the short market because the price bubble kind of evaporated. The futures market is still around $10 per 100 therms or whatever, and that price is pretty expensive. You can buy it on the spot market for around $61?2 or 7. We’re going to look at locking in…but right now the long market is still too expensive.”

— Jim Leider, owner,
Leider Horticultural Cos,
Buffalo Grove, Ill.

What are you doing to control costs long-term?

“We are looking at doing an expansion and installing underground heating, then going back and retrofitting with underground heating. A few years ago when we looked at it, the return on investment was about four years. I think now it’s probably in the year and a half to two years range. That should help.

“We’re also looking at creating a greater production of bigger liner sizes at our Florida facility and transferring it up here to minimize heating and growing space.”

— L.J. Contillo, production manager, Costa Carolina, Ashville, N.C.

“You try to do what you can to conserve. I think everybody is working on energy conservation. We put in additional energy curtains this year and try to do good block management so we don’t open a section before we have to. That also takes money, too, because you have to put money into moving a crop or consolidating a crop and then moving it to another growing zone. But mostly it’s just through more careful planning.

“There’s a lot of people working on a lot of things that you might call out-of-the-box solutions. I’ve had conversations with folks about generating methane from animal waste, corn burning and biomass burners. We’re in a residential area, so we have to be sensitive to what our neighbors smell and see. Right now, we have not implemented any of those alternative systems, but we’ve done a lot of investigating.”

— Tim Stiles, president, Masterpiece Flower Co., Byron Center, Mich.

“We made a decision to run as cold as we can. We cut out a lot of product that we normally would grow in January and ran things a lot colder. We were shutting down wherever we could. In early January some greenhouses were empty. Then we planted a lot of pansy bowls, violas and petunias — things you can grow at a colder temp. We try to pick plants that don’t need high temperatures.

“It takes a long time to grow this stuff, so the jury’s not in. We’ll see how it turns out. We think we’re saving a lot by not running the temperatures that we used to; the trade-off is some of the stuff is a little slower than we’d like it to be.”

— Jim Leider, owner,
Leider Horticultural Cos., Buffalo Grove, Ill.

About The Author

Bridget White is editorial director of GPN. She can be reached at (847) 391-1004 or bwhite@sgcmail.com.

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