Remember the old George Carlin routine where he wakes up in heaven and the first words out of his mouth are: “Gee! In college they told us this was all bullsh*t!”? Many growers who have just finished shipping the crop grown in 2012, sitting across the desk from their loan officer, find themselves saying something similar. “Gee! When they said potato growers were going to overproduce in 2012, I thought it was all bullsh*t!” It wasn’t. The numbers didn’t lie then and they don’t lie now. Every day in this business should lead one to trust the numbers more and more. No potato grower today is doomed to trust his equity to random happenstance…unless he wants to.
Awakening to the reality that 2012 plantings had significantly oversupplied the potato market and killed price, in 2013 almost every growing area adjusted production downward. NASS recently confirmed the extent of this reduction. According to NASS, 2013 production will be down an estimated 5 percent nationally. Idaho alone will be down an estimated 8 percent.
Putting Idaho’s reduction into perspective: If California cut its 9,000 acres by 8 percent, only 720 acres would be dropped out. On the other hand, Idaho cutting 8 percent of 345,000 acres will drop nearly 28,000 acres out of production. That was a needed correction, huge enough in fact to predict a manageable yet adequate supply for the coming 12 months. Everyone can be happy: The grower, the processor, the packer, the retailer and the housewife.
Note that I said that everyone can be happy, not that everyone will be happy. From where we stand at this point in the crop year, everyone can be happy unless some decide to flood the market early. History tells us that such flooding traditionally happens during September, even when the crop is known to be well balanced. Growers attempting to capture a piece of this summer’s strong market pricing will opportunistically oversupply September, all but insuring a seasonal price decline while simultaneously increasing the chances of shortened supply on the end of this crop. It is the same lose-lose cycle we see most every fall transition.
There’s no advantage in this scenario for anyone: Not for the grower, the processor, the packer, nor the consumer. Additionally, holiday pricing could easily slip to levels at or below production cost. Finally, sometime next spring as supplies tighten, price will strengthen significantly. While agile retailers may feed some of their earlier-captured margin back into the category to keep the consumer in their store, the most likely scenario is that shippers will be prevailed upon to mitigate the price rise with lower FOBs; staying in good grace with one’s receiver is no small issue.
This is what happens when chaos reigns. No one benefits from it, and it doesn’t need to happen. So, what’s the answer?
Information is the answer. Each grower in each potato-producing region must know exactly where his production fits into the overall market matrix. This is not intuition or whim. This is economic science. It exists and is available in one place, carefully researched and documented to give each American and Canadian grower his best opportunity to accurately manage the potato-producing aspect of his farming enterprise. To do less is precisely that: doing less than what must be done to wisely and profitably manage one’s business affairs.
Attempting to manage one’s potato business in an information vacuum makes little sense and certainly minimizes one’s upside. No one is smart enough to go it alone. Such is an illusion. A grower’s bank balance quickly differentiates illusion from reality. The 2012 crop shouldn’t be that hard to recall.