Potatoes

Potato updates

Early harvest shows promising yields and restaurant slowdowns.  

Producers hoped the upcoming crop would balance out supply and demand, supporting higher prices. However, this seems unlikely. In 2023, a historically large crop allowed processors to run at full capacity after two years of shortages, but open market prices fell below breakeven, forcing some producers to sell excess potatoes to feedlots. This year, processors had enough potatoes in storage to reduce contracted acres, leading to 2.5% fewer acres planted (with an estimated 5,000 fewer acres in Idaho, 3,000 fewer acres in Oregon, and 16,000 fewer acres in Washington). Producers hoped the reduced acreage would rebalance the market, but ideal weather has led to higher yields. This increase in yields will likely prevent producers from achieving a better demand-supply balance and create headwinds for open market prices.

A major potato processor has lowered its financial outlook for the remainder of 2024 citing slow restaurant sales and slowdowns in key international markets as the primary drivers. The Restaurant Performance Index, which measures the health of the restaurant industry and can serve as a proxy for French fry demand, has shown contraction for seven consecutive months. Higher menu prices and inflation are driving consumers to eat at home instead of dining out. Food prices away from home have increased 4.1% year over year, while food at home prices have only risen 1.1%. Restaurants are feeling the pressure of reduced consumer demand, with McDonald’s reporting its first quarterly sales decline in four years. The U.S. has been losing global French fry market share to the EU and other countries, which have increased their share over the past decade. Meanwhile, U.S. exports of frozen potato products have stagnated or declined. From June 1, 2023, to May 31, 2024, U.S. exports of frozen potato products decreased 7.8% year over year. 

Profitability

March 31, 2024

Even with lower production costs, potato growers will face headwinds from fewer potato contracts and lower contracted prices. The USDA forecasts lower fuel and fertilizer costs for the 2024 growing season. However, lower production may not motivate farmers to increase potato planting due to unfavorable open-market prices, high interest rates and significant capital needs. Open-market prices have declined significantly and contract growers have expressed concern about securing favorable contract prices. If 2024 brings another large crop, producers will likely remain at or below break-even levels.

12-Month Profitability Outlook