The vast majority of potato growers still have partial contracts for the 2018 harvest on the table. In many cases, a short calculation shows that the current prices do not always make it easy to have a good return on cultivation. Perhaps this is a good time to reconsider the strategy with regard to the marketing of the potatoes.
The 5 major potato processors active on the Dutch market are all reducing their contract prices for next season. The reductions are greatest in the off-shore period. There reported Boerenbusiness already about in a complete overview for the Fontane and Innovator varieties.
Contract price level
For the Fontane variety, the average contract prices are €8,72, €12,85 and €14,98 in the off-field periods (week 17 and week 26). For Innovator this is €9,88, €13,90 and €15,88. These are prices per 100 kilos, excluding VAT, quality premiums and storage fees. That's an average price. Over the past 6 years, the basic price at week 13 (without allowances and premiums) has always fluctuated around €11 and €14 per 100 kilos.
Alternative strategy
In addition to the potato price, the balances of other arable crops (such as onions) are also under pressure. As a result, the return is generally low. This is clearly reflected in the Countus Arable Farm Index, with 2018 possibly serving as a breaking point for any adjustment to the sales strategy.
Processors handle this very cooperatively by making various agreements, such as multi-year agreements, click contracts and/or pools. Hedging on the futures market on your own initiative is also an option. However, this does not suit everyone's business operations, especially considering the liquidity requirement. However, pools can also be an excellent alternative.
Average pool prices
Boerenbusiness compared the results of 6 consumption potato pools. This concerns Aviko Potato, APF, Eriva, Flevopool, Nedato and Schaap. For week 13, the payment price without pre-sales (average over 5 years) is a price level of €15,50 to €18 per 100 kilos, depending on the variety. In the past 5 years, the various pools had 1 bad year (2014) with prices between €3 and €7, 2 years (2013 and 2015) with prices between €12 and €18 and 2 years (2012 and 2016) where the payout price reached levels up to €25.
It is likely that pool prices will reach a level of approximately €5,50 this season, which will depress the multi-year average. However, the difference with the contract prices is still approximately €2,50 per 100 kilos. In expensive years the difference in 'contract price versus pool' is large. In years with a low price, you will be better off with a contract. In 2014, and also after the last harvest, you will be better off with a contract of €13 to €14 than the pool's payout price. In bad years, the average pool price often performs better than the free market price, which is usually €1 to €2 lower.
Losing excess weight
The price difference gives food for thought and may even lead to a change in strategy. It is certainly not about phasing out contract cultivation, but perhaps about more risk spreading. For example, by consciously including the 'excess kilos' in a pool, financial benefits can be achieved on average.
A calculation example: 15 hectares of Innovator, with a fixed price contract of 40 tons per hectare, yields 2017 tons of free potatoes for the 225 harvest (with a net yield of 55 tons per hectare). In most cases, these tons are settled on the basis of the daily price. In the current market this yields a financial return of €9.000 at €4 per 100 kilos, in a pool this would be €12.375 (assuming €5,50 per 100 kilos). Regardless of the season, this can be a favorable strategy, calculated on the multi-year average.
Loyalty to customer
Despite the price difference between the different buyers, most potato growers still choose not to change the chosen strategy very much or not at all. This is evident from independent research Boerenbusiness. About 60% of the arable farmers surveyed indicate that they never change buyers. Only 1/5 choose to enter into fixed price contracts with multiple buyers and 5% look at the highest price. Participants in a pool are even more loyal when asked; more than 80% of respondents never switch poles.
The research also shows that 60% indicate that they sell the co-supplied potatoes based on the daily price and a quarter are looking for another trader. The most frequently mentioned reason for signing a fixed price contract is the fear of not being able to sell the potatoes. More than half call it bad luck if they have sold potatoes below cost price. The question is therefore whether a change in strategy will actually take place. Regardless of the sales strategy, there are always instruments available in the market that match a grower's risk profile.