Traveling, you meet a lot of people. Each person you meet has a story to tell:
Story No. 1: In 2005, the year United was formed, a grower planted 900 acres of summer potatoes. He made a lot of money. In 2006 he added another 100 acres, and made even more money. From 2007 to 2012, he added an additional 100 acres each year, culminating in 2012 with 1,700 acres.
"Economic law cannot be bent. No amount of emotion, wishing or sheer force of will can force economic law to react to need."
When the time came last summer to announce to buyers that his crop was nearing harvest, no one seemed interested. Since his crop was aging, he began harvesting, packing and shipping anyway. When he couldn't put a price on a load, he shipped the load open to a terminal market. He paid freight on more than half of his crop. Because terminals were jammed, inspections began piling up. Rejections mounted. All said and done, he explained that an amount approaching $4 million was lost. His resulting equity position in 2012 was little better than it was in 2005, seven years prior.
Story No. 2: When one group of growers in a particular area heard that North America was producing more potatoes than the fresh market wanted, their response was, "We're not the problem. We haven't changed our acreage in 40 years." Forty years? Acreage and production are not synonymous. In the past 40 years, yields are up 50-plus percent on average. Additionally, per-capita consumption across the same period has declined about 20 percent.
Last summer when the time came to ship their crop, the pipeline had already been filled by similar overproduction from other areas. Needless to say, enormous chunks of equity left each shed with each load of overproduction.
Story No. 3: A 600-acre grower in the West commented, "After hearing your outlook for potato production in 2012, my brothers and I decided to hedge our risk by reducing our potato acreage to 300 acres, planting wheat instead. We're still losing money on the potatoes, but that strategy saved us from $600,000 of losses! We're sure glad we listened-why don't others?"
Every human being has a story to tell, and stories can be bent any number of ways to fit any number of desired outcomes. But economic law cannot be bent. No amount of emotion, wishing or sheer force of will can force economic law to react to need; it reacts only to fixed mathematical parameters. In terms of the potato market, it reacts only to the mathematical equation of the supply/demand ratio. Trying to outsmart the economy, the market, the processor or your neighbors is an arrogant and misguided strategy. In fact, it is more like an illness. Facts do not lie, and economic law is unbendable. And the curious part in all of this, one that is difficult to get one's arms around: By simply managing supply farm to farm, prosperity lays in wait for every potato grower without driving the housewife from our category.