A bear. Then two bulls.
That’s how Idaho-based potato economist Joe Guenther sees the North American potato market shaping up in the short, medium and long term.
It’s the current crop that’s still in the storage he’s most bearish on, Guenther told the recent Manitoba Potato Days meeting.
Last year’s spud acres rose about one per cent in the U. S. and fell about two per cent in Canada. Then record-high U. S. yields saw production in that country actually rise by four per cent.
Add to that ongoing economic turmoil, and it was bad news for potato prices. It’s hardly surprising when you consider the numbers of other commodities, says Guenther.
“We saw the price of gas go, over the course of 40 months, from over $5 a gallon to $1.37 today,” he says.
BEHIND THE SCENES
There was plenty of other downward momentum. Fertilizer prices peaked, then fell. And most troubling, it also meant potato prices, including some contracts that were ripped up and renegotiated.
“Initially negotiations led to a healthy price increase in contracts,” says Guenther. “But they were settled, then scuttled and renegotiated.”
In large part that was in response to rising unemployment, tanking stock markets and the fallout from the implosion of the U. S. housing market, he says. Potatoes might seem like a fairly basic food crop, but it’s important to remember that the largest use of potatoes tends to be in restaurants.
“When you’re out of work, you’re not likely eating in restaurants,” he says.
Likewise, open market prices for potatoes fell in the U. S. through the season, and there’s no indication that the market is going to see any great revival in the near term, he said. But then he switched gears and became modestly positive on the crop.
“Bears die,” said Guenther. “And when they do, they’re followed by bulls, so I’m bullish on the next crop.”
“Gary Secor (a potato specialist at NDSU) once said, ‘One good thing about potatoes is that they rot,’” Guenther said. “Because of that we don’t have carry-over like the grain industry does.”
That means potato producers start with a more-or-less clean slate and an opportunity to attempt to balance supply and demand every season. And there’s reason to think that demand will rise again in the coming months.
“The recession will end,” Guenther says. That will mean more demand in restaurants again as busy people look for quick-and-easy meals again. It’s also likely to generally support higher commodity prices – though not the record prices we have seen in recent years.”
That could actually increase potato acres and generally keep a lid on the price upside, says Guenther. “If growers can’t make a lot of money with other commodities, they may decide to grow potatoes,” he says.
Over the longer term, he sees a combination of population growth and continuing global economic expansion driving higher global demand for food products in places like Asia, Latin America and parts of Africa. He also sees potato producers globally to be well situated to capitalize on this growth because of what he calls the tremendous “human capital” of the industry.
He says he speaks to and visits growers everywhere from the U. S. and Canada and divergent points on the globe and every time he does, he sees the same thing.
“I know a producer in Argentina who’s also in the cattle business, and was a race-car driver at Le Mans,” Guenther says. “He’s so well known that people will shout and wave at him on the streets – but when you ask him what he is he’ll tell you ‘I’m a potato grower.’”
With growers that dedicated and proud of their product, great success is only a matter of time, says Guenther.
There’s also a very good story for potato growers in the United Potato Growers co-operative. Guenther says there’s ample evidence that these growers have had a positive impact on prices for fresh potatoes, mainly because they’ve managed to get a significant number of large growers on side.
Globally, Guenther says developing and developed countries will see the most rapid growth in potato consumption, especially as incomes rise throughout the developing world.
“The driving force, as an economy develops, is meals away from home,” Guenther explains. “With more money in their pockets, they will spend it on convenience, at places like quick-serve restaurants and roadside stands.”
The largest fast-food restaurant chains understand this potential, and Guenther points to McDonald’s new presence in India as an example, where they’ve had to renovate their menu to remove beef.
He also sees tremendous potential in new products that will see potatoes in places they’ve never been before – such as pizza toppings or even in just plain old speciality potatoes like organic potatoes.
“Safeway is selling five pounds of Yukon Gold for $7 – that’s $140 a hundredweight – is that a good reason to grow organic potatoes?” [email protected]