Contract price not surprising, undertone that counts

Roughly speaking, all potato processors, with the exception of Aviko, lower the Fontane price in the off-land period. For Innovator, only Lamb Weston and Agristo do so. In the other delivery periods, almost all processors keep their contract prices for Fontane the same. Lamb Weston is an exception to this rule. They also lower Fontane in week 17.

Imbalance at Innovator
For Innovator, the story is different. The supply and demand balance for this variety has become quite skewed during the current season, which is clearly noticeable in the market. This has also resulted in the contract prices (from storage) increasing at some processors. Lamb Weston and McCain are increasing their prices. Clarebout is coming up with a contract price for this variety for the first time in week 17. At the end of June, the Belgians are no longer participating. Of the Dutch processors, only Lamb Weston is increasing its price, which is thus again in line with its competitors.

These (relatively small) changes ensure that the contract prices for both Fontane and Innovator from storage (weeks 17 and 26) increase again. These are not significant differences. For example, Innovator will receive 36 cents per 100 kilos more at the end of June and Fontane 13 cents. That is hardly worth mentioning. Despite the fact that the free market prices for Fontane and Innovator show a considerable difference, this is much smaller in the contracts. Factories have deliberately adjusted prices to ensure that the price range does not get too far off the mark.

Industry not following grower
Growers are torn between two ideas. From the Interpom onwards, a price reduction of 1 to 2 cents was assumed. Factories heard this and decided to anticipate. The largest reduction is at Fontane ex-field. Even there, it is a relatively modest 45 cents. The other idea is that the contract price should actually go up. This is to compensate for cost increases and, on the other hand, the increased cultivation risk. Price increases of 2 to 3 cents have been mentioned as an ambition. The industry does not think that is realistic.

Not only the individual price segments are looking for a balance. This also applies to the European processors. Which area and which yield fit the current processing capacity in the EU-4 and how big is it actually? In 2017, the sector choked on a monster harvest of 23,5 million tonnes of consumption potatoes. Last year, a million tonnes more potatoes may have been harvested, but that did not put the market in a depressed mood. On the contrary, the pricing is actually surprising. Especially among the processors. At the same time, new price increases follow each other seemingly without much effort.

Sales market
If you listen to the major processors, this is far from self-evident. The sales of end products from Europe are clearly showing a decline. The high price level is maintained, so it is certainly not doom and gloom. That is also an important reason why processors have accepted the doubling of the price of potatoes this season (between mid-November and early February). They had to, because growers are using a 'bend or burst' tactic. You could say with success.

All processors indicate that they remain positive about demand in the medium term. In the short term, things are different. There is more competition on the world market, volumes are under pressure and with that also the price. At the same time, they have no need to undermine the mood among growers. The 2024 crop year could also have turned out differently.

You could even say that the significant area expansion has been their salvation. It increased by a good 55.000 hectares in the EU-4. With an average yield of 42,3 tonnes per hectare, you are talking about more than 2,3 million tonnes of potatoes, while the difference with 2023 is 1,58 million tonnes. So a lot of potential has been left unused.

Area is growing again
Potato processors are unanimous in their belief that the area will increase again this year. Last year, an absolute record of over 575.000 hectares was reached. Another explosive increase is not likely, but an increase of several thousand hectares cannot be ruled out. Growers have few alternatives that offer a similar return. Especially with a cooled onion market. The potato industry knows this and is responding to it.

The contract prices that Boerenbusiness publishes are the 'bare prices', without surcharges and premiums. For example, Agristo has separate prices for direct delivery from the field and cleaned delivery from the shed as of this year. What processors do not like to provide insight into are the seed potato prices. Prices are rising at most companies. They do not advertise exact amounts. Trading houses no longer want to make price agreements and only guarantee volumes. In doing so, they accommodate their own growers, but the consumer grower is faced with a further increase in cost price. Partly because of this, many arable farmers feel the result at the bottom line as 'farming backwards'. Especially when you cannot profit from the free market this season because the kilos are disappointing and the quality is lacking.

Seize opportunities
Anyone who wants to continue growing at a cost-covering rate would do well to review their cultivation and sales strategy. Am I growing the variety that suits my land and company and in which periods do I deliver? How much risk do I want and can I take? Am I using the right sales instrument? Opportunities continue to exist, but seizing them is not becoming any easier. Contracts are a safe choice, but not (much) more than that.