US potato production declined for the fourth consecutive year and this season’s crop is the smallest since 2010. Potato prices surged to their highest levels, accordingly. Strong demand for frozen potatoes also contributed to the high price environment, says Almuhanad Melhim, Analyst – Fruits, Vegetables, & Tree Nuts at Rabobank in this RaboResearch report.
According to the report, strong open market prices and strong demand for frozen potatoes are typically sufficient reasons to raise contract prices, particularly since heightened demand for processing potatoes has gone unmet for two years running and fryers were able to pass on costs to consumers without a loss in sales.
Competitive open market and higher contract potato prices, an improved water outlook, and crop rotation pressures are expected to increase potato planted area by 2% YOY and lead to a 7% drop in price in the 2023/24 marketing year.
Growers, through their cooperatives and associations, are in a good position this year to negotiate better contract prices with processors. Fryers, who had to rely on imports and sourcing raw inventories from other regions with better supply situations, have strong economic incentives to increase contract prices and improve contract terms, given strong demand for finished products.
Although consumers will pay higher prices for fresh potatoes, french fries, and other frozen potato products, they are not expected to reduce their potato consumption. The potato is extra precious during a period of inflation, when consumer purchasing power is eroded.
Source: Rabobank/RaboResearch. Summary here. Rabobank customers can log in to download the full report.
