2020: the effect of corona on the potato market

At the beginning of 2020, the April contract for 2020 was trading at around the level of €18 per 100 kilos and the physical market in Europe was trading just above €15 per 100 kilos at that time. This did not change much in the following weeks, causing the April 2020 futures market to drop slightly to €16 in week 8. In March, the 'corona' theme was increasingly present, but the consequences for the domestic and global economy, the agricultural sector and so the potato market was still unclear.  

Market price development
This changed rapidly when the first lockdown was announced. For the potato market (especially for the French fries market), this meant a huge drop in demand for end products. Just think: restaurants were closed, company canteens remained empty and cruise ships came ashore. The effect on market price developments turned out to be enormous. The average physical market price in Western Europe (the cash settlement) fell in a short time from €15 in week 9 and €8,20 in week 12 to €2 in week 17. At the price level in week 17, the still open futures market contracts were settled.

The decline in the futures market for the 2019 harvest led to a parallel with the quotation for the 2020 harvest, which only touched a maximum of €12,50. Afterwards, the futures market even fell back to €30 in the summer (week 5,50). Moreover, the demand for end product picked up considerably in the summer, causing the quotation for April 2021 to recover slightly to €9 per 100 kilos. The situation surrounding the corona pandemic and the associated measures has not improved in recent months. As a result, the futures market traded around €6,50 during this period. This is also the price level at which the year ended on December 30.

What now?
What should happen next in the second part of the storage season? Can the current physical market price of French fries potatoes (from January 1, 2021) increase from an average of approximately €3,50 in the coming period to, for example, the futures market price of €6,50 (closing date December 30) or higher? A number of factors are decisive:

1. The supply for the coming period and in light of the problems surrounding sprout inhibitors.
2. The recovery in sales of end products, which is related to the speed at which somewhat normal life can be resumed now that the population is being vaccinated.
3. Since the coronavirus struck, a huge number of potatoes have been cleared for destinations other than processing. This includes food, starch and flakes. If the situation normalizes, there may be a turnaround that will raise the question: where have all the potatoes gone?

Ultimately, 2020 will be etched in our memories on all fronts. Price-wise, it has led to a very poor market for the potato market for 2 seasons. The processors in particular (who have expanded the volume of raw materials on the basis of the contracts in recent years) have been hit hard. The question is what this more than unexpected situation will do to the potato market for next season, but also in subsequent seasons. Will the area of ​​chip potatoes shrink in Europe? Will there be less fixed price contracts?

Time will tell us that and that may be possible in the coming weeks, if agreements have to be made left or right for the 2020/2021 season. The path that is being taken (in terms of contracting) could very well be the trend for the coming years. The part 'who of the parties runs which risk' will certainly play a greater role with a view to economies of scale.