The potato market for the 2019/2020 season is currently being constrained by 2 factors: The weather forecast and an expansion in the acreage for consumption potatoes. How much do these factors weigh and at what point does the mood in the market tilt?
Update 14-08: This article has been updated based on new information. For example, the entire surface area for the German and English areas was included and not just the area for consumption potatoes. These have been corrected based on official figures and our own insight. The graphs and text have been adjusted accordingly. Based on the 10-year average yield, this means a harvest of 28,11 million tons of potatoes in the EU-5. The area expansion amounts to 18.552 hectares.
The potato market today is balancing on a fine line, with processing on the one hand and production on the other. However, both factors are rarely in balance. This season too, uneven growth is noticeable and is caused by various factors. The price is currently negatively affected by this.
Processing Capacity
We wrote in mid-April a article about the coming potato season. We tried to provide a picture of the processing capacity. However, how many potatoes the factories process each year into fries and other potato products remains shrouded in mystery. We arrived at 15 to 17 million tons, which concerns the bottom rather than the top.
It is almost impossible to make a breakdown by potato types. In a general sense, we talk about consumption potatoes, with French fries and table potatoes falling under the same heading. In addition, starch and seed potatoes also flow in from the sidelines (during certain market conditions). Purely theoretically, this means that the factories at their current capacity need 24 million tons to 27,2 million tons of potatoes to utilize 100% of their capacity, based on an efficiency of 60%.
How much is too much?
In 2017, when more than 29 million tons of potatoes were harvested, the market was clearly saturated. At 23 million tons in 2018, the deficit was large. The year 2016 was slightly better balanced. With the current area figures and yield expectations, the 2019/2020 potato season is heading for a theoretical harvest of over 30 million tons of potatoes in the EU-5. That is simply too much to maintain a profitable price level for the grower.
If we take 2 to 3 weeks of trial harvesting as a basis, we can say that the main harvest currently shows an average to below-average trend that is similar to the 5-year average. This means a yield of 42,3 tons per hectare for French fries potatoes in the EU-5. That is an increase of 14% compared to last year. The graph above uses the 10-year average for calculations.
An average is worthless, apart from making the theoretical calculations. The 5-year average has been calculated based on the dramatically poor 2018 and the unprecedentedly high 2017. The 10-year average is 43,11 tons and therefore differs remarkably little. This level was not achieved in 7 out of 10 years.
4 scenarios
The graph below shows 4 different scenarios and the effect on the total potato volume. As mentioned, the 5-year average is currently the most realistic. That amounts to 27,58 million tons of potatoes. The 10-year average is 28,11 million tons. However, if growth stops completely and we head for the yield level of 2018, this amounts to 24,2 million tons of potatoes. This means that the factories can just about make a living, but a better price level is in prospect for the grower.
The above calculation gives a rough estimate of the harvest, but also shows how buyers in the market are currently calculating. It explains the current position. In addition, Dutch processors have increasingly covered their raw material needs on the basis of contracts. Coverage is growing towards 90%, with Belgium maintaining a 50-50 ratio.
The Dutch factories can largely support themselves with the 'excess kilos' from fixed price contracts. If the yield is moderate, at least free purchases are made. Belgium and other industries are in a different situation. The factories in Germany and Poland are also more likely to go to the market to purchase free potatoes. The latter in particular plays an important role, because the yield here is seriously affected by the drought. In the traditional EU-5 we still include the United Kingdom, while Poland plays a much more important role in the chip potato market.
Arguing about area figures
Even though the potatoes are already being harvested, people are still arguing about the exact acreage. For this article we have used figures used by the potato sector and partly our own expertise. The official German channels reported recently saw a huge increase in area, but those figures are now in serious doubt. A correction of a maximum of 5.600 hectares is therefore expected. This may influence our estimate
With an increase of 18.552 hectares, we receive a minimum of 1,05 to a maximum of 4,9 million tons more potatoes compared to 2018. This is offset by a processing season of 13 months and an increased processing capacity. However, the potato processing industry is not prepared for such a volume. The purchase of these potatoes must come from processors outside the EU-5 (Poland) or strong export demand.
Case not over
It is now important to keep a close eye on the yield measurements and weather forecasts. It is important to look at the whole of Northwest and Central Europe. The game isn't over yet, but the chance of a repeat of last season is almost unthinkable.