Do Growers Want to be Profitable?

Holding the line for '09

Published in the February 2009 Issue Published online: Feb 28, 2009 Dave Beesley, UPGA Secretary/Treasurer
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Do growers want to be profitable?Everyone involved with potatoes expects that following a strong marketing year acres will increase and potato prices will fall. History will bear this out if we only look back to 1990, 1996 or 2002.

Strong price years result in unsupported optimism and short-sighted planting. Oh, if only demand would increase to match our desires to plant. Regrettably, we have to plan and react to the market and the world rather than the world reacting to our business objectives.

Today's worldwide recession is a new experience for almost everyone in the potato business. Shipping-point pricing has been at record high levels through the first three months of marketing the 2008 fall crop. Commodity prices have fallen from record high levels during the spring to near or below cost of production during the late fall. Potato returns have been singularly stable during the last three crop years of any period in history.

All of these, except for the recession, make planting extra acres of potatoes appear attractive. This recession has reduced demand to levels we don't yet understand.

So how can one grower's extra 100 acres affect anything in a United States market of a million acres? The answer is all potato markets are extremely fragile. A 1 percent change in supplies can cause a 7 percent change in FOB pricing. Local and short-term overages can have major national, long-term negative impacts on the market.

Some years ago a statistician said that short-term down swings in the market will have an impact from which it will take 9 to 12 weeks to recover. In particular we can demonstrate many years of prices being depressed during the early harvest season and remaining depressed until spring. Short-term over production has many times depressed the fresh market for half of the market season.

As we look toward the 2009 crop, what can we expect for the fresh market? We can expect as little as a 3 percent increase in supplies available for the fresh market, causing a 21 percent reduction in grower returns. The strongest indications are that production just equal to 2008 will, due to decreased demand, result in significantly lower prices.

Trend-line yields were achieved in all growing areas this year despite adverse weather conditions during the spring and summer. We should expect more potatoes from increasing yields in 2009.

All markets for potatoes are extremely fragile. Slight increases in supply will cause large swings in grower returns. This crop season, growers are the closest to a balanced market as we have ever been. This is what profitable marketing can look like.

Everyone who is thinking about the joy of marketing just 10 percent more at these prices has thousands of comrades in arms thinking the same thing. We are being presented with the opportunity of our lifetime to match supply with demand by holding the line on acreage.

The argument is not about what we grew last year or 10 years ago. The only argument to have is whether we want to be profitable or not.