While many commodities important to the world, such as wheat, maize and soy, are hitting new price records, the local commodities in the Netherlands seem unable to break free from the old price developments. Potatoes, onions and carrots certainly do not show record prices, there is more (the feeling of many growers) a disappointing price development during this season, whereby the average cost price is barely achieved.
It is difficult to guess what exactly is the cause of this difficult price development. Is there just too much product? Are there too few players in the (purchasing) market? Are the high costs elsewhere in the chain offset by lower raw material prices? Who knows, but the fact is that the price development so far has been a disappointment for many potato, onion and carrot growers. The challenge for the coming seasons will be liquidity within the arable farms. Sufficient cash flow from a current season is often necessary to provide liquidity for the coming season.
High cost
However, the market is the market (if there is one) and supply and demand determine the price, so you have to row with the (price) belts that are available. What the effect will be of a war chest that is in many cases too small will become apparent in the coming years. As a result, the incentive to maintain high input crops will diminish for many growers. The coming season could therefore become a referee, especially if the market price of, for example, wheat can maintain the current level by mid-2022.
Looking at the potato market, there is clearly a more solid undertone, both PCA/Fiwap and Belgapom mention this in their market report. This is not yet really translated on the current market, as witnessed by an unchanged Belgapom quotation (€20) on Friday 22 April. The dip in the market at the beginning of March due to the war in Ukraine has recovered, the market is back to the level it was before the start of the war. In fact, the potato market has not yet made a step up, but is back to square one. The declining market at the start of the war certainly did not absorb less, according to the figures published this week. So it was not the loss of demand, but more the fear of growers (sellers) that lowered the market. In that sense, the 'corona panic button' is close at hand. Now that the market is recovering from a price point of view, the market is actually still in balance. Despite the limited supply, processors more or less let the market run its course.
What determines the mood?
A tour of the market clearly shows that a number of factors play a role as a result of which the price level has not been able to make another step up in recent weeks. First, there is the settlement of the April 2022 futures contract. A lot depends on the final cash settlement (CS) for both the forward and physical market. A futures market that would show an erratic course (strongly up or down) in the week of settlement makes for an unreliable picture.
The second issue is the 'thin' physical market. The supply of Innovator, Challenger and other lower quality French fries varieties (especially Fontane) is drying up quickly, while the remaining supply of free potatoes, often of better quality, is relatively limited. The potato market could therefore make significant steps in terms of price in a short period of time. However, customers do not buy volume with this. The offer is limited, the best strategy is to adopt a wait-and-see attitude as a buyer and wait as long as possible for the offer to come to you. It is therefore not the case that if the market were to rise to €25, there would be 40.000 tons of extra supply. With a higher market, the supply does not increase, is the conclusion in fact. The balloon (read: market) only explodes when the 'buying need' of one or more buyers becomes so great that there is no other choice to buy at higher prices.
Another point of the market mechanism is that if the market is higher, the already existing and fixed volumes of potatoes must also be paid for at a higher price. More parties are active in the Agria segment, for example. A variety with a relatively large number of independent growers and a wide diversity of sales opportunities. Agria is certainly in high demand this season and buyer and seller have a good idea of where the market is. This leads to a healthy and clearly demanding market for this season, which results in higher market prices. Agria has also passed the €24 level for the sales of chips (for that matter, export-fit goes towards €30, delivery in May), while varieties such as Fontane and Challenger (to a lesser extent Innovator) are not yet able to take this step. A next price step will come, but that will have to be finalized after May 1!