Over the past 2 weeks, the undertone on the futures market has become firmer. A futures market quote around the level of €7 is far from the cost price, let that be clear, but the very faint undertone as in July in particular seems to be out of the picture at the moment.
The futures market for the 2020 harvest is currently (mid-September) clearly bottoming out. The built-up demand around €6,50 appears to be moving slightly towards €7, but it is unclear where the supply lies (in terms of volume). The number of contracts traded is limited. This makes it difficult to pinpoint what is really moving the market. Given the current physical market price of less than €3 on average, a futures market quotation around €8 is difficult.
Trade and industry are calculating what to do: buying potatoes from the field for €2,50, storing them and then selling them at, for example, €7,50 on the futures market seems interesting. In previous years, the average premium between ex field and the potato futures market of the April contract was a maximum of €3. At high market prices (above €25), the premiums are higher (up to €5). However, in price-wise bad years, this is not an issue.
Special situation
A special situation is currently occurring: a physical market at less than €3 and a futures market quotation above €7, a premium of more than €4. The question that can be asked is: how and why? It may well be that there is a lot of expected value (due to the expected demand in the further course of the season), but that is not expected to be the only reason. Another factor is the high storage costs compared to previous seasons. These provide a larger premium between the physical market and the futures market.
Many growers will soon be faced with an important decision: should I store it for longer or should I say goodbye? Adding more and more costs to potatoes (liquid assets) can put pressure on the boiler until the beginning of next year, but from around April onwards (in combination with an improving market for the end product) it can provide breathing space and then €7 is not a big price. Despite the very low price level, the daily market shows that there is a 'thick bottom' due to good sales to various destinations (such as starch and feed).
Processors generally take the excess kilos with them, which are then charged at approximately €2,50 to €3 per 100 kilos. This may indicate better processing than previously assumed, but it may also indicate the fact that processors do not want to miss out on the dirt-cheap raw material, despite the existing stock of end product in the cold stores.
Question from undercurrent
A problem in the current situation is that (if the market moves towards the €5 level) demand from the undercurrent decreases. The raw material (i.e. the end product) then becomes too expensive for processors, for example, to store and the alternative sales channels (such as flakes, starch and feed) then disappear. So it's a balancing act on a fairly thin line.
The demand for feed potatoes is even increasing slightly this week, because the upcoming corn harvest is expected to produce a somewhat disappointing protein content. Livestock farmers like to have some potatoes to mix with the corn silage. However, if the purchasing price of potatoes exceeds €4 (free), demand from livestock farming will disappear again. The conclusion is that the ex-market market feels clean. This despite the expected larger supply, given the favorable weather reports until the end of September.