The potato futures market started a strong recovery this week after the corona shock last week. The Dutch physical market, meanwhile, seems to be in a bit of a downturn. For example, if we look at the processing figures published this week and the Belgian yield estimate, that sentiment does not seem justified.
It seems logical what happened at the potato market this week. Price pressure on the futures market last week is now reflected in the physical quotation. That certainly plays a role in the top of the quotation. But if we look at it with a critical eye, there is another mechanism that plays an equally important role in the declining physical quotation.
Compelling offer
On the sandy soils in the east of the Netherlands, there are still plots where potatoes are in the ground. In addition, there are potatoes in non-frost-free (emergency) cells. With various weather reports predicting (moderate) night frost, growers want to get rid of these lots quickly. Buyers know this and lower the price a little, thinking: they will come anyway. Especially when it comes to potatoes in the ground, growers have made the choice to sell anyway in order to keep the costs of storage - as far as space is available - in their own pockets.
If we look at developments in other EU-4 countries, it is striking that the recent developments surrounding corona have little or no influence on the market there. The Dutch contribution for the cash settlement fell by more than €1, but the contribution from Belgium and France did not disappoint and Germany even recorded a small plus of €0,05. Germany is particularly striking, because the government there is talking about major measures to limit the number of corona infections. The fear of the coronavirus also seems to be fading on the futures market. Positive reports about good processing figures and a relatively small Belgian harvest are becoming more prevalent again.
Other motives
Other interests, especially from industry, will also play a role in the background. The futures market is partly used as a benchmark for negotiations regarding the sale of French fries. A significantly lower quotation could therefore be unfavorable for the industry, especially now that the necessary contracts have been brought forward and people are more or less taking the gamble that the new harvest will be available on time next year. If things don't work out differently, potato prices will now drop, but the industry would suffer a serious blow towards the second half of the season.
After two mediocre or bad potato years, the industry has an interest in retaining the growers. Processors benefit from being assured of sufficient supply. The most expensive raw material still remains: no raw material. After years of consecutive growth, several parties were shocked by the decline in the past season. Further shrinkage of the area is a real fear. Just look at developments on the grain market and the rapidly rising cost of potato cultivation.
Advance on the new CAP
In Flanders, there may be an additional revision of the rules surrounding the CAP. It Department of Agriculture & Fisheries In recent weeks, it has announced various documents regarding pre-eco schemes that will come into effect in 2022 and may have major consequences for companies that rent a lot of land for loose potatoes. Many Belgian growers fear that, for example, there will be an obligation for a certain share of dormant crops or green manures that growers with little land of their own will not be able to meet. In addition, landlords appear to be cautious about offering land, because they assume that 2022 may serve as a reference year for determining the distribution of payment entitlements in the new CAP that will come into effect in 2023.