To say there is a lot going on in the world is an understatement. Due to the situation with corona, which was immediately followed by the war in Ukraine, all raw materials markets are badly shaken. The unpredictability and huge peaks make it almost impossible to control.
In the world of energy, metals and agricultural raw materials, it is no longer just about price, but especially about availability. While we have built a fine-meshed distribution system over thirty years in which raw materials were always available and delivered exactly on time via JIT (just in time), the situation is different now. Nothing is certain and nothing can be assumed automatically.
It is clear that the cost price has risen enormously (and continues to rise). This applies to the farmer, the transporter and the processors. This places an enormous burden on the available capital, making cash flow management very important. Because of the high prices you want to keep little stock (dead capital), but because of the uncertainty of delivery you want to keep extra stock to avoid a standstill.
Uncertainty dominates
These uncertainties create a more than nervous market, with the potato market appearing to focus more on the by-products needed to fry fries than on the raw material potatoes. Availability and costs of transport, availability of packaging, availability and costs of cooking oil, availability and costs of energy (gas) are a number of challenges that the industry faces. Purchasing potatoes seems to be a final item at the moment. Processors have become cautious and can reasonably meet their obligations for the delivery of fries with the potatoes purchased so far. Processors apparently had their purchasing portfolio reasonably in order for March, so they do not necessarily have to actively enter the market now, despite the fact that processing has so far been running at 100% and is showing good figures.
Selling free potatoes for direct delivery is therefore difficult. There is little demand and only delivered kilos are collected. The demand from exports (for example Innovator for Switzerland) is also not the driver in the market at the moment. Exports are running but not wildly. Challenges with transportation and transportation costs also play a role. By the way, that is a hot item in the market anyway. One can imagine that Innovator from Flevoland, for delivery to a processor in Flevoland, is worth more than Innovator from Northern France, which also has to be driven to a Dutch processor.
Stay calm
Growers with free potatoes are also waiting for the market relatively calmly. There is no need to panic, but growers with potatoes that cannot be stored until May will still have to switch in the near future. Processors are currently not purchasing further away either. One cannot estimate what the market will be and what the world will look like. If it is €40 in June, it will be paid if there are fries in return, and if there is no demand, nothing will be paid in June and no additional purchases will be made. So the strategy is to move in the short term and wait for the long term.
The futures market is a reflection of this. Where other raw materials show an enormous expected value (difference between daily market and delivery for a later period), the potato futures market shows a negative expected value. The market is thin and there are few buyers.
You would expect that if potatoes could now be priced at €18,50 for delivery at the end of April, there would be purchasing interest among processors. After all, it is a discount of €1,50 on the daily market. However, people do not register on the futures market and ignore it for the moment. Something that indicates that people prefer the fear of what is to come over the opportunity it (theoretically) offers. Moreover, an even further fall in potato prices would send a bad signal to the market for the coming season. With a good demand for fries, an extremely low stock of potatoes among farmers (lower than in 2018, according to VTA) but still a falling price, this will not motivate planting potatoes for the new season.
Risk management
The extremely high input costs that potato growers face, with moderate liquidity from the previous season, may cause the acreage to decline even further next year. It is also not without reason that spring wheat seed is sold out in Europe, and that many farmers are still considering a crop plan switch to manage liquidity. Low input crops with high balances are what people are looking for. And then you don't end up with potatoes, onions or carrots. Crops that require a lot of fertilizer, crop protection products, irrigation and storage (energy) have then been added to the extremely high-risk crops in the crop plan.