By Bruce Huffaker, Publisher, North American Potato Market News
Though the world is emerging from COVID-19 lockdowns, the recovery path is far from certain both for the general economy and for the various potato industry sectors. Numerous questions highlight the challenges facing the industry. Will “social distancing” become the new way of life? If infection rates spike as restrictions are eased, will governments re-impose limits on economic activity? Will there be a second wave of infections later this year? How soon (if ever) will conventions, sporting events, concerts and amusement parks be allowed to run at capacity? How long will economic recovery take? What impact will the response to COVID-19 have on long-term demand for potatoes and potato products? Because nobody has clear answers to these questions, the outlook for potato markets for the remainder of 2020 and beyond is more uncertain than ever.
Historically, demand for potatoes has changed at a stable rate over time. That has allowed growers to match planned production with expected usage, with the major driving force for year-to-year price changes being the deviation of yields relative to trend. COVID-19 has upended that model. Demand for potatoes and potato products has shifted dramatically, due to restrictions on business activity, travel and public gatherings.
Though governments are easing those restrictions, most have not mapped out a path to pre-COVID normality. Even if or when that happens, it could be a long time before consumers regain the confidence necessary for a complete recovery. The impact on potato markets varies by industry sector. People still need to eat. They will continue to eat potatoes, but the products they consume will vary depending on where they eat and the economic and cultural situation they face.
Table Potato Market
The russet table potato market is a prime example of the dynamics the industry is facing. As lockdowns got underway, consumers could no longer eat out. They stripped grocery store shelves of everything as they prepared to hunker down at home. In the early days, grocers purchased anything resembling a potato to restock shelves. Once the initial shock subsided, and emphasis turned to protecting customer health, primary interest focused on 5-pound and 10-pound bags of potatoes. With foodservice operations mostly shut down, the market for russet count cartons collapsed. Packers were forced to package as many large potatoes as possible in consumer bags. Then, as restrictions on restaurant operations eased, distributors needed to rebuild pipeline supplies, which had emptied during the shutdown. Carton prices stabilized. At the same time, formal and informal give-away programs reduced demand for retail product, at least temporarily. The result has been a roller coaster market for russet table potatoes.
Though restaurants have started to reopen, most localities expect to limit operations to 50 percent of capacity, or less, for the foreseeable future. Buffets (including potato bars) remain closed. Travel and convention business will be slow to recover. The net result is likely to be a continuing imbalance between demand for consumer packs and count cartons. In addition, we suspect that waste consumes a larger portion of the potatoes served in away-from-home settings than it does for in-home consumption.
While red and yellow potato consumption always has been more concentrated in the at-home environment, we have picked up reports that the pandemic shutdown has made it difficult for packers to move creamers and size-B potatoes, as well as specialty potato varieties. Those who have established a strong retail presence are doing much better moving those potatoes than sellers who have depended on the foodservice industry to purchase product in 50-pound cartons.
French Fry Industry
The French fry industry quickly took steps to mitigate the impact of the shutdown. By the end of March, fryers were reporting that freezers were clogged with finished product. They told Columbia Basin growers to stop planting potatoes, with about 80 percent of the Basin’s crop already planted. Initial contract volume reductions for the 2020 crop ranged between 20 percent and 25 percent, though some of that volume was later restored. Growers with contract potatoes from the 2019 crop still in storage were encouraged to move those potatoes through other channels. Fryers made plans to continue using old-crop potatoes through September and possibly into October to clean up what they could of the 2019 crop.
April marked the bottom of demand for French fries. At presstime, we still did not have definitive information on the extent of the usage slowdown. What we do know is that despite a 30 percent drop in April frozen product exports and a substantial decline in domestic sales, fryers managed to reduce their finished product inventory by 113 million pounds. That is the industry’s largest April stocks drawdown since 1993. It trimmed the industry’s holdings by 1.2 percent, relative to the previous year’s stocks. The drawdown may have been necessary to make room for product made from early potatoes, which must be processed when harvested during July and August However, we suspect that demand did not drop off as much as processors had anticipated.
Restaurant Sales
Evidence suggests that quick-service restaurant (QSR) sales began to rebound during the last half of April and that the recovery has continued since that time. That sector represented 65 percent of pre-COVID sales. Most of its business always has been either drive-thru or take-out, which puts it in a much better situation than other segments of the foodservice industry. Over the next year, we doubt that QSR sales will be down more than 5 percent. The sector may actually see some growth, as consumers shift more of their food budget to take-home options.
Recovery is likely to be much slower for other foodservice operations. While many restaurants have added take-out options during the pandemic, it is not a natural fit. Where restaurants have been allowed to reopen dining rooms, most jurisdictions have limited that option to 25 percent or 50 percent of the operation’s capacity, with no clear indication of if or when those restrictions could be eliminated. This category accounted for about 20 percent of the industry’s pre-COVID business. Fry sales to the sector could fall 30 percent to 50 percent, or more, short of year-earlier levels through the entire 2020-21 marketing year.
The demand outlook for both fresh and frozen potato products is extremely unstable. Even if restrictions continue to be lifted, consumers may be reluctant to resume old practices. That could crimp demand. Fry contract volume reductions may be sufficient to balance raw product supplies with demand. If QSR sales exceed year-earlier volume, fryers may need to buy some potatoes on the open market, to cover needs until the 2021 harvest gets underway. On the other hand, we are not sure that table potato growers have made sufficient adjustments to account for the downturn in demand for fresh potatoes. The market for open potatoes from the 2020 crop could be extremely volatile as the demand outlook fluctuates.
Huffaker’s Highlights:
- COVID-19 will create turmoil in potato markets throughout the 2020-21 growing season.
- Overall potato supplies are unlikely to be balanced with usage requirements.
- Usage requirements will depend on how fast the economy – particularly the foodservice industry – recovers, which is extremely uncertain.
- If QSR sales start to grow relative to the previous year, processors may have to purchase open market potatoes.
- Table potato supplies should be plentiful during the coming year
- Should processors need to push potatoes from the 2020 crop onto the fresh market, that would exacerbate the supply situation.
