The export market is calm, processing partly stopped in December, the chips stocks are high and the sale of pre-fried product has fallen back to below 80% due to the lockdown. Nevertheless, there are bright spots in the potato market.
Because despite all the negative factors, the potato price will not drop any further. The futures market, which has not been declining these days, is also leaning slightly higher. Traditionally, little trade is done in the dark days before Christmas. This is again clearly visible this year in the futures market for the April and June 2021 quotations.
In recent weeks there was a demand for potatoes due to additional processing with destination the United Kingdom. The impending Brexit caused a hamster effect in the UK, resulting in large stocks of fries being stockpiled in cold stores on the British island. Belgian factories in particular were in the market to secure extra volume of potatoes, which turned out to be more difficult than expected.
Common thread on the potato market
The situation in recent weeks, in which the Belgian industry in particular had to purchase additional volume, may continue to be a common thread through the potato market in the coming months. On paper there are (too) many potatoes, but if actual potatoes have to be bought, it is still difficult to get them for the prices shown in the various quotations.
For that reason, Fontane was purchased last week at €4,00 per 100 kg ex works. New tenders are also still being put on the market by trading houses, whose intention is to secure potatoes, especially for the period April to June. The prices for this are between €6,50 per 100 kg from week 17, increasing to €9,00 for June. The question, however, is whether many potatoes are given up on the basis of the tenders mentioned. The parallel between the physical and futures markets can therefore clearly be drawn during this period. The market is thin and when there is real demand it is difficult to find supply.
Starch and flakes are major buyers
Are there fewer potatoes than expected? That doesn't seem to be the case. The fact is that the trade and processing industry have worked hard in recent months (in fact, right at the start of the corona crisis in March) to avoid ending up with surpluses. It has been decided to immediately eliminate possible surpluses and not to incur additional costs for storage and transport.
The starch and flake market is a major customer. The prices are close to the level of potatoes supplied to the industry. The industry in the Netherlands and Germany in particular does not seem to be interested in free potatoes. These processors can see out the season by shifting the contract potatoes and the stock of fries into the cold stores, which seems to be the current strategy.
Lack of free potatoes
The fact that the bottom is set in concrete is not only due to the demand and pricing of alternative channels, but also to the lack of free potatoes, which the Belgians seem to be lagging behind. A little extra demand can sometimes have a strange effect on the price of the free potatoes.
After all, truly free potatoes are not or hardly for sale during this period for prices below €4,00 per 100 kilos. The grower with free product experiences no urgency in terms of sales, unless the quality forces him to do so. There is no downside risk and the upside potential is many times greater. So waiting seems to be the motto. Growers with contract potatoes, some of which can be paid freely, are also in no hurry.
Settlement of contract potatoes
The importance lies in the finishing and settlement of the contract potatoes. If a grower has 1.000 tons of potatoes in storage, of which 700 tons are based on a contract for €13 delivery January/February, it makes little difference whether the share of free potatoes is €3,00, €4,00 or €5,00. per 100 kilos. The point is that the contact of 700 tons is neatly finished, so that the grower is not really prepared to sell the remainder (300 tons) to another party.
When some demand arises, it becomes difficult for the buyer, for example a trading house, to buy potatoes at the current low price level. Conclusion: there is no real compelling supply or surplus. However, this may arise in the coming months due to problems with storage costs. But otherwise, as outlined, there is no rush among growers to 'give away' potatoes. This means that the bottom of the market is set in concrete and that there is real upside potential.