Looking Forward Instead of in the Rear View Mirror

Making the best plan

Published in the March 2009 Issue Published online: Mar 31, 2009
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The 2009 fall potato crop will be one of the most critical for growers to take control of their destiny and avoid financial catastrophe.

Growers throughout the country have typically responded to a year with high prices by significantly increasing the acres they plant the following year. Respected industry economists and analysts have forecasted that fall growers will increase their acreage by 8 to 10 percent if growers follow their historical behavior.

I believe that growers must understand what led to higher prices in the first place in order to understand what the market is really communicating. Prices significantly above break-even levels for growers do mean that the market can handle some additional amount of supply, whereby growers can likely increase their total revenues even though their profit margin will shrink.

However, we must understand that supply depends not only on acreage but also on production per acre. Many growers have already forgot that yields for the fall 2008 crop were lower than the trend line yield in Idaho, Washington, Oregon, Wisconsin and Colorado. If all of those regions met their expected trend line yields in 2008, fresh supplies would have been very close to the average of the previous three seasons.

In other words, it was the impact of the combined weather events throughout the northern tier of the United States and eastern Canada that created the space in the fresh market for the returns growers are receiving, not a lack of planted acreage.

United analysis shows that a return to just the trend line yield in Colorado, Wisconsin, Oregon, Washington and Idaho will generate an extra 2.8 million cwt for the fresh market even with no increase in planted acres.

If all other regions of the United States and Canada produce the same volume for the fresh market that they did in 2008, supplies will be back to 2005-07 levels of small but reasonable profits for U.S. growers.

Even if growers plant no additional acres compared to last year but exceed trend line yields in 2009, volume will be back to levels not seen since the formation of United.

The key for survival for the coming year is for growers to not chase after returns they received for their 2007 or their 2008 crop, but to plant the crop that fits the demand for when it will be marketed from the fall of 2009 through the summer of 2010.

If you believe that growers will plant beyond the United recommendation for a freeze in acres, you must start to make your contingency plans. You must determine if you can survive a market with returns similar to 2003 levels.

You must determine, if you believe it is cheaper to not plant a portion of your acres, even if you have already fumigated, to destroy a portion of your crop in late 2009 or 2010 if there is no market for the product of your labor that even covers the cost of packing and marketing.