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AgWest’s 12-month outlook for potatoes suggests slightly profitable returns for contracted and break-even returns for uncontracted potatoes.
Northwest potato production recovered to historic levels after two years of decline. The larger crop will provide enough raw supplies for processing plants to run at full capacity. Uncontracted potato prices have decreased to breakeven levels or lower due to the large crop.
12-Month Profitability Outlook
A large Northwest crop
After two years of poor weather stunting potato yields, the 2023 Northwest crop has rebounded to 2019 and 2020 production levels. At 145.0 million cwt, this is Idaho’s second-largest potato crop in state history (following the 2000 crop of 152.3 million cwt). Idaho’s crop benefited from an additional 35,000 planted acres due to processor expansion and a 10 cwt per acre yield increase. Washington and Oregon also had improvements in their potato production, up 4.5% and 6.4% year-over-year, respectively.
U.S. 2023 Potato Production (in million lbs.) and Year-Over-Year Change
National potato production reached 440.8 million cwt, up 10.5% year-over-year. Idaho had their second largest crop on record due to increased planted acres.
Open market prices plummet
Potato production in the U.S. increased by 10.5% in 2023, mainly due to higher prices over the past two years which encouraged additional planted acres, a 21 cwt per-acre national yield increase, and more contracted acres due to processing plant expansion. However, the surplus of potatoes caused a sharp drop in open market prices, which usually peak in August and stabilize in October. The Idaho Grower Returns Index (GRI) for russets, a measure of profitability for potato growers, jumped in mid-August 2022 to over $28 per cwt as harvest was just getting underway. The GRI remained over $20 per cwt in Idaho and the Columbia Basin until August 2023, as harvest neared. Between mid-August and the end of September, open market prices plummeted to under $10 per cwt. While open market prices tend to stabilize in October, open market prices continued to go down, losing over $1 per cwt in Idaho and the Columbia Basin during December due to slow end-of-year sales. Historically, a 10% rise in potato production is expected to lower open market grower returns by 80%. The Northwest had a 14% increase in production. The good news for producers is that a large portion of the increased production was intended for processor expansions, and grower returns for open market prices will not likely decline as quickly as they have historically.
Looking forward to 2024, open market prices are below breakeven, potentially discouraging additional planting. While open market prices have not yet settled and are continuing to decline, historical data of similar-sized crops can help to estimate the future trends of open market prices. The 2023 crop is comparable in production to the 2017 crop when the open market prices ranged in the mid-high $7.00 per cwt range. Acreage cuts occurred 59% of the time following significant production increases. Lower open prices may discourage producers from planting uncontracted potato acres which could help to stabilize next year’s open market prices.
Largest potato stocks in over 20 years
Due to increases in potato production, the December 1 potato stocks were the largest since 2000. A larger potato inventory will help fryers regain the domestic and offshore french fry business they lost during the past several years. Global french fry exports have grown steadily in recent years, with an average annual growth rate of 4.8% over the past decade. From 2020 to 2022 exports slowed as raw potato supply constraints limited the amount of product available for offshore sales. This shortage led a major french fry retailer in Japan to limit sales to only small french fry orders. With the largest potato stocks in 20 years, fryers will be able to recapture some of their lost market share. French fry demand is strong and expected to remain strong as indicated by the boost in restaurant retail sales seen over the past two years.
Restaurant retail sales
Restaurant sales are on the rise, a strong predictor for potato sales.
Potato growers will benefit from a large, good-quality crop and relatively strong contract prices. Contracted growers will enjoy both strong prices and excellent production, a welcome change from the past two years. Uncontracted potatoes will face challenges from the oversupply of potatoes, which will reduce the demand and price for open-market potatoes. Production costs will continue to create headwinds for potato growers. In Idaho, production costs were in the mid-$7 and low-$8 per cwt from 2013 to 2020, but they increased sharply in 2021 and reached more than $12.50 per cwt in 2023. Production costs have moderated in 2023 and are expected to decrease in 2024 due to lower fertilizer and fuel costs (see the Crop Inputs snapshot). However, prices usually drop faster than production costs, so potato growers need to negotiate carefully to ensure profitable prices.
Russet Potatoes Producer Price Index
For more information or to share your thoughts and opinions, contact the Business Management Center at 866.552.9193 or bmc@AgWestFC.com.
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