Positive Outlook for Potato Market

Driggs-field

Bruce Huffaker, Publisher, North American Potato Market News

 

U.S. 2017 potato production will fall short of the 2016 crop. What appeared likely, once USDA published its first acreage estimate for the 2017 crop, is clear now that the fall harvest is underway. As we go to press, more than half of the U.S. crop is under cover. Growers are experiencing numerous challenges during the harvest, including heat, rain delays and the potential for frost damage, depending upon the growing area. During September, prices for russet table potatoes collapsed from extremely high levels posted during August. But by Oct. 1, grower returns were still 20 percent to 65 percent above where they were at the same time in 2016. Furthermore, supply conditions are such that prices should move up from harvest lows, whereas it took until the beginning of March for 2016-crop russet prices to reach their lows.

At press time, the final size of the 2017 fall potato crop is still uncertain. However, it is clear that this year’s crop will be the smallest since at least 2013. It has the potential to be the smallest crop since 2010. Preliminary information points to the shortfall being concentrated in russet potatoes, both in the fresh and processing sectors. The drop in russet production is likely to be much more pronounced than the overall decline in the potato crop.

Preliminary data show a 16,000-acre decline in this year’s fall potato area to 907,800 acres. That includes a 15,000-acre reduction in Idaho. While acreage shifted between other growing areas, the net decline reported for the remainder of the country was only 1,000 acres. The data show that 91 percent of Idaho’s planted area was russet varieties this year. That is down from 92 percent for the 2016 crop, suggesting that the russet acreage cut was even greater than the state’s overall acreage decline. Nationwide, russet acreage fell to 70 percent of the area planted to fall potatoes from 71 percent in 2016. It appears that the shift moved in favor of chip potatoes. White potatoes (combined round and long) increased to 20 percent of acreage from 19 percent for the 2016 crop. Shares for both red and yellow potatoes remained constant this year at 7 percent and 3 percent, respectively.

 

Weather Factors

Reduced acreage is only the first factor that has eroded russet potato production. Crops went in the ground much later this year than they did in 2016 across most of the U.S., particularly in the Pacific Northwest. Furthermore, soil temperatures were much cooler when the potatoes were planted than they were last year. That combination got crops off to a slow start. In the Pacific Northwest, a combination of summer heat and smoky skies appears to have limited bulking for much of the potato crop. While other growing seasons have been hotter than this year, the heat persisted much longer than usual this summer, stretching through July and August and into the first half of September.

Interestingly, though the hot weather has suppressed yields in the Columbia Basin, industry sources indicate that solids are above average and quality is excellent, which is much different than historical patterns. We are receiving reports of quality issues with the Idaho crop, but they do not appear to be as severe as has been the case with previous heat events. Processors are optimistic that good recovery rates will offset at least some of the production shortfall in the Pacific Northwest.

In Wisconsin, the challenge has been excessively wet weather throughout the summer. That was followed by a period of hot, dry weather during September, which has slowed harvest progress. Further east, dry weather took the top off yields for Maine’s potato crop.

Between wet weather in Idaho and Colorado, and heat delays in parts of the Midwest and East, harvest progress has been slower than usual this year. That is putting some potatoes at risk of frost damage. Some potatoes also may have been put in storage at temperatures that were above optimal levels. Both issues could lead to additional problems for the 2017 crop after it is under cover.

 

Market Outlook

The market for the 2016 russet crop ended on a strong note, as prices advanced to their highest levels since February 2014. Growers were able to extend the price advance throughout the month of August. The seasonal price collapse that normally occurs with the start of the new-crop harvest was delayed until after Labor Day. However, producers from several growing areas began clogging the pipeline with excess supplies beginning the last week of August. Following Labor Day, prices for russet count cartons were in free fall. Idaho 70-count cartons fell from an August high of $21 per carton to $9 per carton by the end of September. Price declines in other growing areas were similar.

Will the price decline continue? That depends to a large degree upon grower resolve. If growers will recognize the current supply situation and act accordingly, prices should stabilize near current levels and move higher. Based on the crop outlook as of Oct. 1, russet table potato supplies for the 2017-2018 marketing season could fall 5 percent to 8 percent short of year-earlier levels. Cuts of that magnitude should support crop-year average prices at least 30 percent above current (early-October) levels.

Raw-product supplies also will be tight for processors. They already are making purchases where they can persuade owners to sell potatoes at contract prices. They will attempt to limit purchases at above-contract prices by pushing for an early and aggressive start to the 2018-2019 processing season and by reducing finished-product inventories to pipeline minimums. If open-market prices become extremely high, fryers may choose to put some customers on allocation rather than continuing to bid against the fresh market for the available supplies.

Supplies of other potato types should be more plentiful than russet supplies. The Red River Valley potato crop has rebounded from the 2016 crop failure, boosting supplies of red potatoes. Growers have continued to expand yellow potato production. Storage supplies of chip potatoes appear to be much more plentiful than they were a year ago. If russet prices behave as expected, they are likely to support strong prices for both red and yellow potatoes, though possibly not at as strong of levels as they were for the 2016 crop. The main impact of increased chip potato supplies is likely to be a cut in early-season contract volumes in Florida and Texas. Buyers also may be more selective on quality than they were for the 2016 crop.

 

Huffaker’s Highlights

  • Russet table potato supplies could fall 5 percent to 8 percent short of 2016-2017 movement.
  • Based on early-October conditions, prices for russet table potatoes for the 2017 crop should average more than 30 percent above current levels.
  • Supplies of processing russets also are tight this year.
    • Fryers have been buying open-market potatoes when they can get them for contract price.
    • Processors will deplete finished-product inventories and jumpstart the 2018 harvest in order to limit the need for open-market purchases.
    • If raw-product prices get out of hand, some customers may be placed on allocation.
  • Supplies of red and yellow potatoes are likely to be more plentiful than they were last year.
    • A strong market for russet potatoes should limit any price downside for red and yellow potatoes.
  • Chip potato companies will be able to rely on storage supplies for longer than they did last year.