By Bruce Huffaker, Publisher, North American Potato Market News
There is little doubt that the 2019 potato crop will be seared in the memories of both potato growers and buyers. Fall potato crops were hit by what could be viewed as a perfect storm of crop problems, including delayed planting, untimely rains and an early hard freeze. Conditions varied by growing area, but they combined to tighten supplies of both table and processing potatoes. Prices have responded to these issues accordingly. The question now is how growers and buyers will respond to these conditions as they make plans for the 2020 potato crop.
The factors growers consider as they make decisions on how many potatoes to plant are extremely complex. They vary depending upon individual circumstances. Inertia is the biggest factor in any given year. Numerous factors dictate that growers keep potato acreage fairly constant from year to year. Other factors include contract volumes and pricing, prices for open market potatoes, prices for competing crops, changes in growing costs, as well as pricing and availability of seed potatoes.
Several considerations limit year-to-year swings in potato acreage. Crop rotation considerations are frequently cited as the cause of this inertia. While it is a major contributing factor, capital costs of running an efficient potato growing operation also play a role. Equipment needed to run an efficient growing operation is extremely expensive. Established growers need to utilize that equipment as close to its capacity as possible in order to cover ownership expenses. On the opposite side of the equation, opportunistic growers must weigh the cost of equipment needed to run an efficient growing operation against the risk of declining prices, should they enter the market.
In the past, growers who have stepped away from the market have attempted to re-enter following a strong price year for potatoes. While we may see that again this year, the efficiency of continuing operations gives them a huge competitive advantage over the obsolete equipment of those who have stepped away from the market for a few years, making reentry an extremely risky proposition.
Contract Volumes
Contract volumes will be a key consideration in planting the 2020 potato crop. During 2019, fryers cut back on acreage under contract, betting that yields would continue to rise. That didn’t happen. Harvest losses added to the shortfall. Buyers will be under pressure to make sure that doesn’t happen again in 2020. We expect fryers to contract for record volumes of early potatoes in the Columbia Basin this year. Contract volumes for full-season potatoes also are likely to increase, both due to incremental increases in processing capacity and to assure that the 2019 supply shortfall is not repeated. The danger is that processors will contract for more raw product than they need. If the resulting surplus is small, fryers can compensate by reducing the volume of early potatoes used in the following year. However, larger surpluses have resulted in contract potatoes being diverted to the table potato market. That will be a major risk for the 2020 potato crop.
Open Potatoes
Strong prices for open potatoes encourage growers to plant more potatoes during the following year. As we go to press, grower returns for russet table potatoes are running between 23 percent and 109 percent above year-earlier levels, depending upon the growing area. Red River Valley growers are getting 90 percent more than they did a year ago for their red potatoes and 54 percent more for yellow potatoes. San Luis Valley growers are “only” getting 12 percent more for their yellow potatoes than they did a year ago. Unconfirmed reports indicate that Idaho processors are buying fry-quality Russet Burbanks for more than average-quality potatoes return on the open market. The strong prices will encourage growers to plant more open-market potatoes in 2020 than they did in 2019.
Growers might temper their enthusiasm for expansion in 2020. They should recognize that extreme weather events were behind the strong market for the 2019 crop. We believe that they will realize that if yields rebound to trend levels and the industry can avoid the severe harvest losses that created this year’s shortage, prices are likely to fall back to levels experienced for the 2018 crop – perhaps even lower.
Competing Crops
Prices for competing crops are a complicating factor for projecting the 2020 potato acreage. The major competing crops have not experienced the strength that has characterized the potato market. Wheat prices are lower than were a year ago. Prices for some of the other competing crops are slightly higher than they were a year ago. Some exotic crops, such as hemp, may continue to pull ground away from potatoes in 2020. But for the most part, relative prices will favor potato acreage expansion. An acreage response model based on the relative strength of potato and wheat prices suggests that growers will plant 5.5 percent more potatoes in 2020 than they planted in 2019.
Seed Supplies
Will tight seed supplies limit 2020 potato acreage? Seed prices are high. Supplies of seed for many of the desired varieties of red and russet potatoes are short. However, Europe proved again in 2018 that seed supplies are rarely a limiting factor for potato acreage. Though Europe’s 2018 seed crop was severely reduced by drought, European potato growers managed to expand their acreage by 10 percent. Growers may not be able to find seed for their preferred variety or find top-quality material to plant, but they will be able to plant as many potatoes as they want. As an industry sage has frequently stated, “there is good seed and bad seed, but there always is enough seed.”
Word of Caution
Growers should exercise caution as they make plans for the 2020 potato crop. They should remember that while a repeat of 2019 growing and harvest conditions is a possibility, it is highly unlikely. Processing growers need to recognize that contract volumes for the 2020 crop are likely to overcompensate for 2019 losses. They should not compound that situation by planting enough potatoes to make sure that they will be able to fill their contracts even if they run into problems. Russet table potato growers need to recognize that there is a strong possibility that processing potatoes will spill into the table potato market. They also need to understand that it will take time to rebuild demand for potatoes that has been lost due to the shortages that will persist throughout the 2019-20 marketing season.
Huffaker’s Highlights:
- Growers are likely to plant more potatoes in 2020 than they did in 2019.
- Processing contract volumes may increase more than industry needs.
- Growers need to exercise caution to avoid overplanting and the resulting low prices for their 2020 potato crops.
