Up Vs. Down

Removing overburden from supply

Published in the September 2012 Issue Published online: Sep 13, 2012 Jerry P. Wright, President CEO, United Potato Gro
Viewed 1059 time(s)

When two old cowboys who hadn't seen each other for a long time ran into each other at a local tavern, one of them looked much the worse for wear. When asked about his ragged condition, he replied, "I've been up and I've been down. I like up a lot better."

Our potato market has been up and it has been down. Life is a lot more fun when it's up. It's down right now and our business life isn't that much fun. But here's the curious part: It doesn't have to be down. It may fluctuate somewhat, but it never has to be down like it is now.

Potato growers have been at this business long enough to know the precise driver of price: It's the supply/demand relationship. Perhaps no one should be surprised by the oversupply that has happened; oversupply traditionally happens following a good year. Adding to the oversupply are those who feel they didn't capitalize sufficiently on the up market. Mother Nature is playing her hand as well with big yields. Again, the potato grower's economic life doesn't have to be like this.

From the best measurements available today, the supply of fresh potatoes is projected to exceed the historical demand trends for some months ahead.

Those familiar with the mining industry understand the term `overburden.'

Overburden is the soil or rock that lies over the top of ore. Overburden must be removed to expose and give access to the ore. Our current potato supply has a significant overburden. Until that overburden is removed, price will remain under pressure.

Two options exist to deal with this situation: 1) Proactively removing the potato market's overburden, or, 2) waiting for it to disappear on its own. Modern storage technology will maintain the current overburden in good shape until next year at this time. That's a long time to wait to remove any overburden, enabling price to recover. Untold amounts of equity will disappear in the interim.

And, waiting a year to see if the market corrects itself is only half the suspense. The other half is waiting to see what potato growers will plant in 2013. How will that turn out? How will that decision be made? What reference point will growers use to fix their future course?

As mentioned earlier, as an industry and as individuals we've been at this long enough to predict region by region, farm by farm just what a price positive volume of fresh potatoes should be. Growing potatoes doesn't have to be a high-stakes poker game. It can actually be a highly remunerative business. We know how to balance supplies with demand. We have the tools. The question is: Are growers ready to manage this industry as a business or as something else?