By Bruce Huffaker, Publisher, North American Potato Market News
Major French fry producing countries shipped 6.572 billion pounds of French fries to countries outside of their local trading zones during the year ending Sept. 30, 2019. Those exports exceeded year-earlier movement by 2.4 percent. During the previous five years, global French fry trade had been growing at a 6.2 percent annual rate. Last year’s trade was limited by a poor European potato crop and capacity constraints in North America. Crop problems in North America and Europe are likely to limit the growth in export sales again during the 2019-20 marketing year.
Supply Limitations
While data on U.S. potato production appear to have several discrepancies, the overall supply situation that has emerged will not support significant growth in 2019-20 French fry exports. Columbia Basin processors will have more raw product to use than they had for the 2019 crop, but production fell short of pre-season plans. Some of the available potatoes are being shipped to other growing areas where supplies are short. Fryers expected Idaho yields to remain strong. They didn’t. In addition, up to 10 percent of the Idaho processing crop was damaged by frost. That combination left processors short of contract potatoes. They were able to make up for some of the difference by purchasing potatoes originally slated for sale on the table potato market. In the Midwest, North Dakota growers may have left as many as 5,000 acres of processing potatoes in the ground. Yields on the Wisconsin potato crop were down, due to extremely wet weather throughout the growing season. However, Wisconsin may have more usable raw product than it had a year ago, when frost took a major toll on the quality of its 2018 crop. Maine growers also have a larger potato crop than they did in 2018. However, Maine processing plants won’t be able to make up for the shortages in other parts of the country.
Canadian growers produced 106.6 million cwt of potatoes during 2019. That is 4.1 million cwt more than the 2018 crop, a 4 percent increase. Unfortunately, that increase fell substantially short of industry plans, particularly in the Prairie Provinces. Both Cavendish Farms and the J.R. Simplot Compnay have new processing facilities that needed more raw product to meet their production goals. Growers added acreage in conjunction with those plans. Unfortunately, adverse growing and harvest conditions thwarted any production increase. Manitoba’s 2019 potato crop fell 3 percent short of the 2018 crop. The Alberta crop was down 0.2 percent. In addition, a portion of the potatoes harvested in the Prairie Provinces are at risk of breaking down in storage, due to wet and cold conditions during harvest. Growers in the Maritime Provinces were able to produce 8.7 percent more potatoes in 2019 than they did in 2018. However, Prince Edward Island’s (PEI) potato crop is only 737,000 cwt larger than the 2017 crop. That year, PEI’s major processor had to import potatoes from as far away as Alberta. This year, any potato imports will have to come from either New Brunswick or Maine, as Alberta has no extra potatoes to spare. Overall, processing plants in eastern Canada may not have many more potatoes to use this year than they used from the 2019 crop – certainly not enough to make up for the shortfall in the Prairie Provinces.
Information on European potato production remains fluid. Potato crops in the five nations that produce virtually all of the EU’s external French fry exports, Belgium, France, Germany, the Netherlands and Poland, appear to be up about 6.5 percent from the disastrous 2018 crop. In 2018, potato production in those countries fell 19.7 percent short of the record 2017 crop. Processors were able to limit the decline in October-September external French fry exports to 5.2 percent by tapping carryover supplies from the 2017 crop, as well as by pulling potatoes away from other industry sectors and jumpstarting the 2019 harvest. By the end of the season, pipeline supplies of finished product were empty. The extra production in 2019 may allow for some rebound in offshore exports. However, the 2019 potato crop is still about 14.4 percent below the 2017 record. That will be a limiting factor for French fry production and exports.
Strong Demand
We believe that the global market for French fries continues to grow about 6.2 percent per year. Supply constraints during 2018-19 resulted in some demand going unfilled. That hole is believed to have created pent-up demand that the industry needs to fill in the coming years. If our growth estimate is accurate, global markets need about 7.4 billion pounds of finished product during 2019-20 to cover demand. That is 10.2 percent more than the industry shipped to those markets during 2018-19. Given the supply conditions outlined above, it is difficult to believe that fryers will be able to cover that demand.
Sales volumes for Lamb Weston, the only publicly traded French fry producer, tend to confirm the strong demand for French fries. That company reports that its sales for the quarter ending Nov. 24, 2019, increased 10 percent, relative to year-earlier volume. While a fourth of the increase is attributed to acquisitions and additional trading days, that leaves a 7.5 percent increase in the company’s sales, including both domestic usage and exports. Based on plant locations, Lamb Weston’s raw product supply situation appears to be better than that of its North American competitors. Nevertheless, it will be difficult for the company to maintain that growth rate for the remainder of the marketing year. Challenges for the other fryers will be even greater.
Anticipated Consequences
How will processors deal with this year’s raw product supply shortage? They are likely to test pipeline minimums for finished-product inventories. To the extent possible, they also will purchase raw product originally intended for other uses. Some of that product is likely to move from the Pacific Northwest to destinations in the upper Midwest and in the Canadian Prairies. Fryers will be reluctant to take on new business, which will increase pent-up demand for finished product in future years. Some second-tier customers may have to be placed on allocation. Finally, processors will want to ramp up production of the 2020 crop as quickly as possible. Limited supplies of Shepody seed will slow that process during the first half of July, but we expect a push for a quick start of the Ranger Russet harvest in the Columbia Basin – perhaps as early as mid-July.
Potato growers should use prudence as they market potatoes to processors and table potato buyers this year. Current prices are good, and they may move higher as supplies tighten. Nevertheless, holding out for the peak price is risky. Processors will continue buying potatoes as long as they see a need and as long as they can justify the price. However, once they have covered the gap in raw product needs for the storage season, the buying will stop. In the past, we have seen growers turn down offers in excess of $200 per ton in hopes of a higher price, only to settle for $50 a ton because that was the best that they could get after the fryers pulled out of the market. The table potato market may support higher prices this year, but waiting until the very end of the storage season to settle on a price is seldom a good strategy for growers.
Huffaker’s Highlights:
- Global growth in French fry demand has done little to expand demand for U.S. potatoes over the past 25 years.
- Encroachments of European frozen potato products into the North American market are a hazard to the U.S. potato industry that should not be ignored.
- Global trade in dehydrated potato products is erratic and cannot be relied upon to spur growth in the potato industry.
- Fresh potato exports are a surprising bright spot for the potato industry. Sales to countries other than Canada and Mexico have expanded an average of 12.5 percent per year for the past 10 years.
