Demand Isn’t the Result of Increased Consumption
This year started with tight potato supplies because of reduced acreage throughout the United States of about 8 percent. Weather conditions in some of the potato-producing regions led to reduced yields and short seasons, further tightening the market but resulting in record high prices. The total supply outlook for the 2008 crop is about 10 percent below last year, with Colorado higher and Wisconsin, Idaho and the Columbia Basin with fewer potatoes to ship than last year.
As of Dec. 1, potato stocks were down 25 million cwt., and the pace of fresh movement is unsustainable, said Dave Beesley of Snake River Plains Potatoes in Ucon, Idaho. Beesley presented the 2008/2009 potato supply outlook at the Potato Expo in San Antonio in January. December shipments from Idaho were the highest since 2003 following a weak September and October, which led Idaho to increase carton prices by $1 in early January, the highest price ever for that time of year. Winter weather combined with the Christmas and New Years holidays resulted in strong demand from all potato sectors, which resulted in high demand for two to three weeks followed by the standard February slump, Beesley said. Fresh demand was down 5 percent over the previous six months, and 5.5 percent over the previous three months, which is the equivalent of adding 6 million cwt. to the market, he said.
In the third quarter of 2008, total pounds for bagged potatoes were down, but dollar sales were up almost 10 percent, said Larry Noedel, Noedel Market Research. That amounted to a 13-cent price increase in just one quarter, and there will likely be a greater increase seen in the fourth quarter Nielsen data available this month, he said. Smaller pack sizes performed better than 10-pound sacks, according to Nielsen data, Noedel said. Sales of pack sizes of 4-6.5 pounds were up 49 percent. Although the total retail figures may not look strong, Noedel noted that the overall market looks better when club store numbers are included with supermarkets, with non-retail outlets accounting for 27 percent of the fresh retail market, an increase of 9 percent. However, per capita consumption continues to decrease, with the average American consuming just over 33 pounds annually, Noedel said.
The process market is experiencing a shortage of potatoes, and has so far moved more than two million fresh sacks into dehy not distressed lots, either, Beesley said. Processors are still 8 million to 10 million sacks short of meeting their core customers’ demands, which will keep prices high and could damage the dehy market. The fresh and fry markets should have adequate supplies, but dehy will remain short because of its lower returns.
The frozen potato market has been experiencing strong demand, but that dropped off in December, Beesley said. Contracts, which had already been set, have come up again as a result of the high demand. There’s concern in the market about a recession and what that will mean for restaurants. Quick service restaurants have had good foot traffic but casual dining restaurants already have suffered, although not as much as fine dining restaurants. There is some indication that if people stop eating out, the fresh market may go up, but that hasn’t happened yet, Beesley said, and consumer trends in recent years may result in no correlation.
Last year, frozen foodservice sales were up 3 percent in pounds of potatoes and 11 percent in dollar sales, Noedel said, but the quick service restaurant (QSR) industry is not expected to see growth in 2009 and QSRs are offering alternatives to French fries, which may impact the frozen industry in 2009.
The seed supply is tight with smaller profiles. Seed prices are at record highs and expected to stay there, which will further limit availability for processors. The Canadian Food Inspection Agency and USDA’s Animal and Plant Health Inspection Service reached a consensus on the nematode situation in Alberta. CFIA completed the required testing and the border opened to seed potatoes from the province Jan. 21. CFIA and APHIS are working on a revision to the May 2008 potato cyst nematode guideline document, which will include suggestions from an international panel of scientists, said Will Wise, trade director for USDA APHIS.
This will be a better document. It will be more precise,” Wise said.
Seed acreage in Alberta has been reduced, mostly because the two fields affected by the nematode find were the largest growers in the province, said Edzo Kok, executive director for Potato Growers of Alberta. There were two initial findings of Golden Nematode in those two fields, but thousands of subsequent testing has revealed no other positive tests. Of those first finds, one had no viable eggs and the other had few viable eggs, Kok said.
Although U.S. growers weren’t able to get seed from Alberta last season, a number of customers have requested seed for next year, which speaks to the quality of Alberta seed, Kok said.
Seed from Alberta destined for the United States will be tested at 1.1 pounds per acre, a low rate but safe considering every seed field in Alberta has been tested, said Chris Voigt, executive director for the Washington State Potato Commission. The 2010 crop will be tested at a rate of 5 pounds per acre. Voigt added that all Washington seed fields had been tested and the trace-forward from the Canadian investigation was being narrowed only to the two Alberta fields and not the 20,000 acres that are associated with Alberta seed farms.
U.S. acreage for 2009 is expected to increase about 8 percent, which is the result of high prices and not an increased demand, Beesley said. If the potato-producing areas hit trendline yields next year with that added acreage it will be the equivalent to adding 6 million sacks to the market. Over the last few years, growers have averaged $6 to $10 per cwt., which is better than the $2 to $5 per cwt. they were seeing five or six years ago, said Lee Frankel, president and chief executive officer of United Potato Growers of America. Although supply may appear short this year, but yields are 10 percent or more off trendlines, he said. Frankel encouraged growers to know where their potatoes are going before planting, and that by freezing acreage and hitting trendlines there will be enough potatoes for next year.
“It’s up to the growers to conserve the gains they’ve made and take it to the bank. Don’t give it back this year,” Frankel told growers at the Oregon Potato Conference in January.