By Bruce Huffaker, Publisher, North American Potato Market News
Huffaker’s Highlights:
- Deviations from expected yields are a major factor for year-to-year changes in open-market potato prices.
- The outlook for the 2019 potato crop is mixed. Crops across North America were planted late. Growing conditions have been exceptionally good in growing areas that produce up to 60 percent of the crop. Crops in other growing areas including Wisconsin, Idaho and the San Luis Valley have faced challenges.
- Global French fry demand may be a driver for the 2019-20 market. Pipelines are empty due to Europe’s 2018 crop failure. Europe may not have enough raw product to cover demand growth in the global French fry market. North American processors have added capacity that might be able to cover some of that growth.
Will the North American potato industry face a surplus or a shortage during the 2019-20 marketing season? The answer is complex. It involves the intersection between planted acreage, yields, demand, processing capacity and global potato industry developments, among other factors. Many of these factors will be colored by the challenges that the industry has faced during the past year. Given crop and market conditions as of Aug. 1, it appears that the potato market is in a precarious balance and could move in either direction, depending upon developments during the next 90 days. We will not have a clear picture of the situation until the harvest is complete, and perhaps not for some time after that.
Planted Acreage
USDA estimates that growers planted 967,500 acres to potatoes in 2019. That is only 1,200 acres more than they planted in 2018. Texas, Florida and California were the only states reporting acreage increases this year. Those increases were weighted toward early chip potato production. Though experts dispute the details of USDA’s Acreage report, it seems clear that U.S. potato growers didn’t get carried away planting potatoes this spring.
Canadian growers planted 360,543 acres to potatoes this year. That is 11,526 acres more than the current estimate for 2018 acreage. Increases came primarily in provinces with French fry production capacity. They were designed to either fill the needs of new capacity coming online this year or to cover a shortfall in raw product supplies for existing capacity.
Potato growers make rational decisions when they plan production, though observers frequently accuse them of being overoptimistic. The days of planting potatoes with the expectation that buyers will take whatever is produced are history. However, there still is a tendency for growers to produce more potatoes than the industry needs. The dichotomy probably is the result of different approaches to planning and production practices. Plans tend to be based on three-year average yields. That is viewed as the best indicator of expected yields for the next crop. Nevertheless, each season growers seek to find ways to improve the yield and quality of the current crop. Growers have a hard time integrating changes in cultural practices into production plans because they are not sure what the impact of those changes will be until they are proven in the field.
Yield
Yield deviations are a huge factor for potato markets. Evidence suggests that they can explain over 70 percent of year-to-year deviations in potato prices. If growers are rational decisionmakers, that makes sense. While farming practices have a huge impact on yields, growing potatoes is not a controlled factory process. Output will vary from year to year due to environmental factors over which growers have limited control. Such factors include heat units, rainfall, wind, hail, insect and disease pressure, frost, etc. While national average yields have been in a strong uptrend since World War II, in any given year the national average yield can deviate from the trend, either up or down, by more than 20 cwt per acre. Deviations on individual farms can be more substantial. While the most severe deviations from trend represent only 5 percent of production, the extremely inelastic nature of potato markets is such that swings in supply of that magnitude can result in extreme profits (yields below the trend) or severe losses (yields above the trend).
Through August, growing conditions for the 2019 potato crop have been mixed. Cold weather and excessive moisture (snow and/or rain) slowed planting in most storage growing areas. As a result, crop development has lagged behind normal this year. That has pushed back harvest dates for early potatoes. Nevertheless, many growing areas report that conditions have been excellent since crops have gone in the ground. Exceptions include Wisconsin, where excessive rainfall has continued to be an issue for crops; much of Idaho, which experienced up to three frost events during June; and the San Luis Valley, where a lack of sunshine and heat units threatens to push harvest into the frost danger zone. The areas with the most severe risk produced close to 40 percent of the 2018 potato crop. Nevertheless, if conditions in those areas improve and/or other growing areas have strong enough yields to offset losses in the at-risk areas, the national average yield could still come in above the trend.
Demand
The demand outlook for potatoes is mixed. Though buyers are showing strong interest in yellow potatoes, that is coming at the expense of other table potato varieties. Total demand for table potatoes has been flat, at best, for several years. In contrast, demand for frozen potato products has been growing in recent years, both domestically and globally. Domestic French fry consumption has been increasing roughly 1.5 percent per year in recent years. The growth rate for the global market (outside of North America and Europe) is much greater, though from a much smaller base. Global French fry trade has expanded an average of 8.3 percent per year for the past 15 years.
Global Market
The global French fry market could be a bright spot for the potato industry during the 2019-20 marketing season. Europe’s 2018 crop failure constricted raw product supplies and suppressed global French fry trade. Capacity constraints, along with raw product shortages in parts of North America, prevented North American fryers from filling the void left by the European shortfall. Preliminary trade data suggest that the industry may have avoided a downturn in global trade during the 2018-19 marketing year, but any growth was minimal. Lost sales cannot be recaptured, but demand has continued to grow. Conservatively, we would expect 2019-20 global trade to exceed the 2017-18 volume by 10 percent. To match the longer term trend, trade would need to increase by 17.2 percent. That suggests that global French fry sales could increase between 0.65 billion and 1.11 billion pounds, relative to 2017-18 levels, provided that the industry has enough raw product and enough capacity to cover that volume.
Europe probably has the processing capacity to cover most of the growth, at least on the low end of the range. Raw product supplies may be more problematic. A year ago, Europe was dealing with a large surplus from the 2017 crop. Though potato production dropped more than 20 percent in some of the key growing areas, the carryover of storage potatoes meant that processors could get by with a 46-week supply without any disruption. Coverage was closer to a 42-week supply of raw product. Fryers hoped to make up for that difference by jumpstarting the 2019 harvest, but Mother Nature did not cooperate. European crop conditions are mixed. Growers planted more potatoes this year. They are hoping for average yields, but summer growing conditions have been mixed. The trade is hoping for average yields. The industry probably needs that to bring finished-product production back to 2017-18 levels. Any glitch could tip the European market into a shortage again this year. Two short-lived heat waves have spooked the European market this summer. Reports indicate that Poland and northern Germany are dry. Irrigation water supplies are limited in a number of growing areas.
Could North American processors capture some of the expected growth in the global French fry market? The industry has added at least 1 billion pounds of new processing capacity over the past 18 months, with an additional 650 million pounds of incremental capacity scheduled to come online during the 2019-20 marketing year. Some of that capacity will be used to ease pressure on plants that have been running beyond their design capacity. Fryers also will work to cover pent-up demand in the domestic French fry market. Nevertheless, if the raw product is available, fryers may be able to increase offshore exports from the U.S. and Canada by 300-400 million pounds this year.
