By Bruce Huffaker, Publisher, North American Potato Market News
Huffaker’s Highlights:
- The COVID-19 pandemic has created huge dislocations for the potato industry.
- The long-term impact is unknowable and will depend upon the extent and trajectory of the disease.
- The uncertainty comes as growers are in the process of planting the 2020 potato crop.
- The risk of overproduction makes it imperative for growers to exercise caution when making last-minute alterations to production plans.
Is it over yet? As I write this article, the world is in the process of shutting down, in hopes of slowing the spread of the novel coronavirus. Who would have thought that a virus could turn back our internal clocks so that a minute could seem like an hour, an hour like a day, and a day like a month? At the same time, decisions that normally take months or years are being made almost instantly.
In this environment, it is impossible to make economic projections that will remain relevant by the time this article is available to the public. However, it is important to understand the changes that have taken place since the beginning of 2020. The situation varies widely between the various industry sectors and between end markets.
Retail Sales
People are being reintroduced to home cooking. As governments put restrictions on dining experiences at restaurants and mass feeding operations, and encouraged all who can to work from home, grocery stores have experienced a run on food items, among other things. For the potato industry, that has included a huge increase in sales of table potatoes and potato chips. Retail sales of frozen and dehydrated products also are up, but increases in those categories are being offset by reduced sales through foodservice outlets, which are a larger portion of the market for those items.
Is it hoarding, or are people using more product? While hoarding may be a factor in the retail sales of potato products, we believe that the shift to eating more food at home is resulting in major changes to the average consumer diet. The potato is the most versatile vegetable available to consumers. It can be used in numerous ways and can become a part of every meal occasion. It is viewed as a comfort food by a large portion of the population. While younger consumers may not be familiar with the possibilities, the plethora of online recipes provides them with opportunities to experiment, especially since “social distancing” restrictions limit their mobility.
At this writing, it is too early to tell whether retail sales will slump as consumers settle down to use the potatoes they purchased during the early rush. However, we doubt that any slump in sales will be severe. We think that home potato use is up substantially. To the extent that the early purchases resulted from a hoarding instinct, consumers may end up discarding potatoes held too long in less than ideal conditions.
Table Potato Market
Will the industry have enough table potatoes to meet the surge in demand for fresh potatoes? Storage table potato supplies were tight before the surge in retail buying. The table potato shipping surge started during the second week of March, with little evidence beyond price hikes to suggest that packers were making efforts to preserve supplies so that they would have enough potatoes to supply core customers with potatoes through the normal end of the storage season. Russet potato packers will be able to pick up potatoes previously slated for use in frozen processing. However, there is no backup for supplies of red and yellow potatoes, other than the start of the 2020 shipping season in early growing areas. Storage supplies of those potatoes will run out earlier than usual in the Red River Valley, Colorado, and Idaho.
The russet table potato situation is complicated. The 2018 crop was much smaller than the 2017 crop. Through the end of February, shipments for the 2019-20 marketing year were down 3.6 percent, relative to the previous year. Most observers believe that the shipping season was front-loaded and that shipments for the remainder of the season would fall short of the 2019 pace. Nevertheless, shipments surged during March. They exceeded year-earlier movement by 6.2 percent during the first three weeks of the month. During the third week of March, they exceeded the 2019 pace by 26.2 percent. Fryers are releasing some growers to sell russet potatoes that they had under contract, which complicates any attempt to project supplies for the remainder of the season.
Current russet table potato sales are focused on meeting retail demand. Under normal conditions, most retail potato sales are made in 5-pound and 10-pound bags. Prices for potatoes in those packages increased as much as 81 percent from season lows in less than two weeks. Prices on count cartons (typically sold through foodservice channels) have started to come under pressure. In the early days of the rush, retailers were willing to buy any potatoes that they could get their hands on. That has changed as the supply chain has become reoriented.
French Fry Market
The French fry market is less rosy. Over 80 percent of the French fries produced in North America are marketed through quick service restaurants (QSRs) and other foodservice establishments, both locally and in the global market. Export sales started to freeze up during February, starting with the China lockdown and progressing as other countries adopted measures to slow the spread of the coronavirus. Now, restaurants in several states are closed, while most are limiting sales to takeout and delivery. Those sales have increased, but they don’t make up for instore dining.
The fear that fryers would run short of raw product before the 2020 harvest got underway has evaporated. Fryers are releasing some contract potatoes to be packed and sold as table potatoes. Growers are expecting contract volume reductions, rather than increases, for the 2020 potato crop. Fears that processors would overreact to a tight 2019 supply situation by over-contracting have been turned on their head. It is possible that they may be setting themselves up for another tight supply year if economies are able to rebound quickly from the current dislocations.
Potato Chip Market
Many potato chip plants are running seven days a week to keep up with strong retail demand. As a result, storage potato inventories will not last as long as the industry expected. Buyers cut back on early-season potato contracts this year, due to a large storage potato inventory. Now, the increased demand created by travel and work restrictions could lead to tight supply conditions for chip potatoes, particularly during May and June.
Uncertainty
COVID-19 has created huge dislocations in potato markets in North America and around the world. It is creating a huge amount of uncertainty just as growers are starting to plant their 2020 crops. While medical professionals are calling for lockdowns to continue for several more weeks, others are calling to ease the measures quickly to minimize the economic damage. Even if restrictions are eased quickly, consumers may be reluctant to resume old practices for some time, for fear of a resurgence of the virus.
Unlike bombing raids, this challenge is unlikely to end with an all-clear signal. There will be no victory parade or mass celebration. We don’t know what changes are temporary and which will last for a generation, but the impact of this crisis is likely to be seared into the memory and behavior of this generation, just as the Great Depression and World War II affected the behavior of those who lived through those calamities for the rest of their lives.
