True to tradition, the potato market – led by the potato futures market – chooses a direction in week 27 that is leading for this season. A price above €15 inspires confidence, but is that price realistic? What awaits the potato market this season?
It is not a hard and fast rule. The recent past has shown that the market is somewhat flexible with the reference date of week 27. The market hesitates, especially when there is a lot of uncertainty - due to growing conditions or the corona pandemic. However, it is certain that a direction will be chosen between weeks 27 and 29. Which factors play a role?
Decrease in area
The weather and acreage figures are the most important indicators used to gauge the market around week 27. For the first time since 2015, we are experiencing a decrease in area in the EU-4. Compared to last season, the estimated decrease is 5,3%. That is approximately the same as this spring's expectation. No official figures are known for Germany. A decrease of 3% has been taken into account here. The UK is no longer included in the calculation. The acreage in the UK is estimated to decrease by 5% this year, to just over 100.000 hectares of ware potatoes. That is an absolute low point.
The total area (consumption, seed potatoes, starch) in the EU-4 amounts to 514.710 hectares. That is almost 22.500 hectares more than in 2017, when the area was 492.300 hectares. We can classify that harvest year as one of the 'bad' years with a price drop below €10. In the current price movements of the futures market, parallels can certainly be drawn between 2017 and 2021. Even then, the stock exchange in Leipzig was still trading relatively high, but a turnaround occurred in week 28. Crop development is 2 to 3 weeks behind average this season. There is a good chance that the decision moment will also be postponed.
Top yield
The planting season started much earlier in 2017 than we have seen this year. At the end of April, three quarters of European potatoes were already in the ground. It initially remained dry. When it started raining, it produced a top harvest. With an average hectare yield of 50,25 tons for ware potatoes, a record was even recorded. That level was far from being achieved in the 3 years that followed. In particular, the dramatically low yield of 2018 is dragging down the 5-year average.
At the 5-year average, the total potato harvest in the EU-4 amounts to almost 29,5 million tons of potatoes. If we calculate with 'scenario 2017', this volume is almost 32 million tons. It is estimated that this is too ambitious. A volume between 28 and 30 million tons is a reality, provided no unusual events occur this season. Think of a long dry and hot period or a rainy harvest.
Market in balance
So much for the growing season side. Then the sales. Compared to 2017, the capacity of the processing industry has increased significantly. Market insiders believe that a harvest volume of between 28 and 30 million tonnes is in balance with what processors in Europe need. Even slightly above 30 million tons is still considered acceptable. If the total harvest is less than 28 million tons, then there is a good market. However, well over 30 million tons is too much.
These statements are based on an analysis of the figures. In 2015 and 2016, the EU-4 harvested just under 28 million tons of potatoes. The price level at that time is comparable to the 2019 harvest year, before the arrival of the corona pandemic. This means prices around €18 per 100 kilos. A range of €14 to €20 per 100 kilos is estimated for this 2021 harvest season with a total volume of around 30 million tons. Due to the arrival of new chip factories and expansion of existing locations, processing has grown by 3 million tons in the EU-4. That's 10%. No one actually knows what the exact maximum capacity is. Over the past 3 years, there has always been a factor that has affected the industry. Be it drought or corona.
Less coverage
While processors were able to benefit from a very high coverage percentage for their raw material last season (2020-21), things will be different next season. Stable or slightly lower contract prices have ensured that fewer potatoes are under contract. That is why factories are already looking for cover by physically recording tonnes.
There is also a need for this on the grower's side, as experience shows. Anyone who considers a €14 scenario more realistic than €20 covers themselves by physically recording potatoes. Experiences from the past 2 years – with a market price below cost price – play a major role in this. Potato growers are not looking forward to the third year in a row with marginal prices. Considering the annual cost increase at 3% this is unsustainable.
Sales of fries are good. Now that events can be organised, the catering industry has reopened and normal life is being resumed worldwide, consumption is increasing. During the corona crisis, it has never been really bad after the initial shock period. The fear remains that a major new outbreak could throw a spanner in the works. That's an unpredictable scenario.
It is visible that the prices of end products are under pressure. The sales price of a ton of Dutch fries fell 4% this year and that of Belgium fell 11%. Transport costs are at a very high level, but this has not yet caused any problems. The additional costs are passed on to the selling party, because only FOB (Free On Board) prices are calculated.
Closing note
If current growing conditions continue and a normal harvest is achieved, the processing industry in the EU-4 will have to process a large total volume. This has been pre-sorted by expanding capacity. Demand has also grown. A balanced supply and demand produces a season without excesses. For the grower, this means an estimated price range between €14 and €18 to €20 per 100 kilos.
At best, that is cost price with a plus. Reason for real negativism is unnecessary given the current state of affairs. A price level of €16 on the futures market in week 27 is therefore a good predictive factor for the course of the 2021/22 season.