By Bruce Huffaker, Publisher, North American Potato Market News
Potato growers are likely to see mixed signals as they make production plans for 2019. Markets for the 2018 potato crop are tumultuous, to say the least. Contract volumes for both chip and processing potatoes are likely to increase in 2019. Supplies of top-quality seed potatoes are likely to be tight. Prices for competing crops have been hit hard by international trade disputes. The strong U.S. dollar creates another impediment for export markets. The resulting environment will encourage acreage expansion. It will make it easy to overdo production increases. Growers need to exercise caution when planning 2019 production if they hope to avoid producing more potatoes than they can sell at profitable prices.
Supply Outlook Mixed
The 2018 potato harvest has created a mixture of “haves” and “have-nots.” In the Pacific Northwest, potato supplies are plentiful, and grower returns on open potatoes have been running 10 to 25 percent below year-earlier levels. In contrast, production from the upper-Midwest through Maine and in much of Canada is down from last year. A record number of potatoes had not been harvested by Nov. 1. Unseasonable weather has resulted in numerous quality issues, including water-soaked potatoes, serious frost damage, and potatoes going into storage either too hot or too cold. Open potatoes are hard to find. In those areas, prices for open table potatoes are up at least 10 percent. Growers are reluctant to sell potatoes at those prices.
Europe’s 2018 crop failures are adding to market turbulence in North America. Production may be down as much as 20 percent from last year. Quality issues will reduce usable supplies even more. North American dehydrators are ramping up to cover as much of the European supply shortfall as possible. North American fryers will not be able to handle much of the French fry supply gap due to capacity limitations and raw product issues in growing areas outside of the Pacific Northwest.
Production Increase Expected
Processing contract volumes will be going up in 2019 in the Pacific Northwest and in the Canadian Prairies. New French fry production capacity will be ramping up in those regions. In addition, processors may need to start the 2019 harvest earlier and more quickly than they have in recent years, due to 2018-crop supply shortfalls. Dehydrators may add contract volume in 2019 – perhaps in anticipation that Europe will continue to have export issues, or in an effort to hold down raw product costs for the 2018 crop. The risk is that processors could overreact to current supply conditions. When that happens, they frequently search for ways to offload the surplus onto the table potato market, which depresses open market prices for fresh potatoes.
Chip potato buyers will need to increase contract volumes for early potatoes from Florida, Texas and other spring and summer potato growing areas. Supplies of storage chip potatoes are down in growing areas east of the Rocky Mountains. Growers will have difficulty storing and reconditioning many of the chip potatoes that they managed to put away. However, as with the processing sector, there is a strong propensity for chip potato buyers to over-contract after experiencing a tight crop situation. With chip potatoes, overproduction in early growing areas has a tendency to back up harvest and push more potatoes into storage during the following year.
Limited supplies of seed potatoes could affect 2019 potato acreage in perverse ways. To quote one veteran seed potato marketer, “there is good seed, and there is bad seed, but there always is enough seed.” Potato growers may not be able to find seed for their preferred varieties. They may not be able to find the quality of seed that they usually purchase, but they will find ways to plant a crop. In the past, growers who believe that they have a special deal to obtain seed not available to other growers have used their “advantage” to expand beyond their historical production levels, expecting to cover the lost production of those who were unable to obtain seed. Such speculation seldom ends well.
Current open market prices are sending mixed signals to growers. In the Pacific Northwest, table potato prices are down more than wheat prices, which could dampen enthusiasm for any expansion, especially since russet table potato prices have fallen short of production costs in five of the last six years. However, prices in other growing areas may be strong enough to encourage expansion. In addition, potato supply conditions may be tight enough to drive prices up during the coming months. That might trigger last-minute decisions to expand.
Conservative Approach Needed
North American potato acreage almost certainly will expand in 2019. Growth in the processing sector makes that inevitable. Increases also are needed in early chip potato production. However, it will be difficult to guard against an over-reaction in that sector. As they plan for the 2019 crop, growers need to take steps to protect themselves from the negative consequences of overproduction. That can best be done by tailoring the size of their crops to the market that they traditionally serve. Growers should seek fixed-price contracts for as many of their potatoes as possible. Where such contracts are not available, production plans should be conservative. It is important to recognize that there is a strong potential for surplus contract potatoes to spill into the fresh market and/or to back up supplies of chip potatoes in storage. Finally, it is important to remember that those “special deals” that supply you with seed that is unavailable to other growers seldom work out as expected.
Huffaker’s Highlights:
- Turbulent market conditions will be sending growers mixed signals about the number of potatoes to plant in 2019.
- The current supply outlook is mixed. Potatoes are plentiful in the Pacific Northwest and in a few other growing areas. They are tight, and storage quality is suspect, in other parts of North America and in Europe.
- Contract volumes will be up in 2019. The industry is expanding. There is a need for more early potatoes to cover for shortfalls in the 2018 crop. However, there is a huge risk that buyers will overreact to this year’s shortfall and contract for more potatoes than they need.
- Weak prices for Northwest russet table potatoes might discourage expansion to some extent.
- Seed potato supplies are tight. Growers may not find the seed varieties and the quality that they normally expect, but they will find enough seed to plant the 2019 crop.
- Growers should be conservative when making production plans in order to protect themselves from the risks associated with overproduction.
