IDAHO FALLS, Idaho — Lower fuel and fertilizer costs have the potential to make 2015 a better year for potato growers, but it’s not a given.
“Whether 2015 is good or bad will be determined by the market,” explained Paul Patterson, University of Idaho extension economist in Idaho Falls. “Even as cost of production comes down, growers have to make sure they plant the acres that can be effectively marketed.”
Matching supply and demand has been problematic for fresh growers in particular the last several years, though the processed potato market has had its share of disruptions recently.
Patterson expects demand for french fries exported from the Pacific Northwest to be down this year in part because of markets that couldn’t be fulfilled during the port congestion bottlenecks last year. More troubling is the strengthening U.S. dollar.
European growers had a small crop in 2013 that opened the door to increased U.S. fry exports into some markets. But hanging onto those market gains in the face of a huge 2014 European crop and the currency disadvantage will be difficult.
“Outlook from the demand side is not overly encouraging,” Patterson said, adding the fresh market has already been anemic for the last few years.
Based on those projections, Patterson thinks the 2015 U.S. fall potato crop needs to stay below 400 to 405 million cwt. to maintain profitable grower prices. Idaho growers need to keep production around 130 million 100-pound sacks. Using the 10-year Idaho yield trend of approximately 421 sacks per acre works out to around 309,000 acres of potatoes. Last year, growers planted 317,000 acres with an average yield of 425 sacks per acre.
If yields are closer to the 20-year average yield trend of 414 sacks per acre, growers could plant around 314,000 acres and still hit the 130 million-sack goal. Potato yields in Idaho have been increasing by 4 to 6 sacks per acre per year for the last 20 years, but Patterson is starting to see strong regional yield differences.
Changes in weather patterns are impacting yield trends with clear differences among production regions. Growers in the Treasure Valley have seen their average yields fall by a half-sack per acre over the last five years, while those in eastern Idaho have seen a 6 cwt. per acre increase over the same period. Magic Valley yields have been flat.
Hotter, drier summers have hurt yields in western Idaho while benefitting those in eastern Idaho.
Not the Low Cost Producer
Managing supply to meet demand has become more critical in an era when Idaho potatoes no longer command the premium they once did and producers in other states can raise potatoes more cheaply than Idaho growers can.
Based on the numbers Patterson was given by producers in Colorado and Wisconsin to run economic models, both states can raise potatoes for much less than Idaho growers. That offers challenges for Idaho, he said, but also rewards for growers who can position themselves as the low-cost, high-quality producer.
According to Patterson’s analysis, operating costs per acre are fairly even when Idaho ($4.72 per sack) is compared with Colorado’s $4.54, Washington’s $4.70 and Wisconsin’s $4.58. The difference is wider when total ownership costs are included in the break-even price.
Higher land costs push Idaho total production costs to an average of $6.98 per sack compared to $6.10 in Colorado and $6.39 in Wisconsin. Total cost in Washington is fairly comparable with Idaho at $6.73. Production costs in the Magic Valley are the highest of the three production regions in Idaho at $4.77 per sack for production costs and $7.03 per sack for total costs.
Lower projected production costs will help Idaho growers, but won’t make up the difference. Patterson expects total costs per sack to be down 11 to 29 cents in 2015, or 1.5 to 4 percent. A 10.5 to 12.5 percent drop in fertilizer prices coupled with a nearly 7 percent drop in pesticide prices lead the cost decline. Labor costs are projected to be up 2.5 percent.
But potato prices remain anemic. The average price for the entire 2014 crop, which growers are still marketing, is projected to be $7 per sack, down 12 percent from the previous year. He recommends growers focus on both the revenue and cost sides of the equation when planning the 2015 crop.
“It’s not how many hundredweight of potatoes per acre that you produce, its how many dollars per acre,” he said.
Source: The Times-News