Potato outlook isn't good - The Packer

Potato outlook isn't good

03/21/2014 03:10:00 PM
Chris Koger

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COLORADO SPRINGS, Colo. — There are two likely scenarios facing U.S. potato growers in the 2014-15 season, and neither of them is sunny, according to Jerry Wright, president and chief executive officer of the United Potato Growers of America, Salt Lake City.

Jerry WrightWrightAnd of those two scenarios, Wright said there’s an 80% chance the one with the worse outcome will happen: growers across the U.S. will plant up to 2% more potatoes in the spring and fall seasons, increasing fresh production by up to 6 million cwt., significantly more than this year’s crop of about 97 million cwt.

“I hate to be the voice of gloom and doom,” Wright said March 13, during his annual update at the U.S. Potato Board’s annual meeting. “I really am not. I am the voice of realism.”

Wright’s assessment came after his report on the health of the potato market during the current season, which should see about 4 million cwt. less than the 2012-13 season of 101 million cwt. Although retail prices were lower, actual consumption was flat. The main good news came from a drop in russet production, leading to an overall “excellent” return on that main variety — although individual region russet returns depended greatly on how many of that variety each area produced, not overall U.S. fresh market production.

“The last thing we need is more russet production next year,” he said.

But Wright said he believes his message is too late to influence growers about what they intend to plant, leaving it up to Mother Nature to be the major factor in what happens to the market next season. Even if plantings hold steady from last season, that could lead to an increase of 4 million cwt. more potatoes for fresh, compared to this season.

“The reason we’re doing well in the fresh category is because we produced 4 million cwt. fewer than in 2012,” Wright said. “ ... If you liked your returns in 2012, get ready for the sequel.”

The effect on grower returns is grim. An “empirically derived formula” that has been validated many times shows that for every 1% increse in supply growers should expect a 7% drop in prices. If markets behave as Wright anticipates, prices will drop 45% when compared to this season’s average.

Three main reasons account for the anticipated volatility in the fresh market:

  • an abrupt drop in export sales of processed potatoes;
  • contracts to supply processors — mostly of frozen french fries — were signed late this year; and
  • rotation and alternate crops do not look promising.

Wright said over the past six months, frozen french fry exports were up 2.5% over the previous season, when expectations were for 15% more. That is noteworthy, considering a 17% annual increase has been the norm in recent years. If that market, mostly China and Japan, doesn’t pick up again, expect some potatoes planted for french fries to spill over to the fresh market. The same goes for late contracts for the fryer market, Wright said.

With poor outlooks on corn, wheat and soybeans, they aren’t as attractive as planting potatoes for rotation or alternative crops, he said.

The reason production is expected to increase even if acreage is the same, Wright said, is because “trend-line yields” are expected to rise this season. During a typical season, yields across the board rise 1.5%, but the 2013-14 crop yields dropped by that amount. A 1.5% increase this season would add 4 million cwt.

Reds, yellows

One bright spot on the horizon, Wright said, is the incrased demand and production of red and yellow potatoes. Although they’re about 30% of the entire category, that’s changing, with the dominant brown russet losing ground.

“The real issue is that they’re growing so quickly it’s difficult to tell where the top is and how to match supply with demand,” he said. “Probably the biggest risk we have in those categories is if everybody jumps in and plants extra reds or yellows and we overwhelm the demand with excess supply and confuse ourselves about what the real demand is.”



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mda    
March, 24, 2014 at 12:07 PM

Mr. Wright is overlooking some of the details of the red market. This season, we have had the largest drop in average red price from start of harvest to present of any season in recent memory. With pressure on the market as it is now, we are concerned about market conditions of the 2014 crop. More red acres from the Russet growers will just make the red market that much worse!

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