Analyst Insight: Will wet lifting tighten processing supplies?

Friday, 8 November 2019

Earlier in the season we looked set for a decent sized crop to be met with lacklustre demand. However, the adverse weather conditions during lifting has meant that the outlook for this season has taken a U-turn.

Progress across GB has been delayed and by 22 October 30% of the crop (excluding seed) was still left in the ground. A significant volume of the crops lifted during the dryer periods will have been sold straight off the field. However, a high proportion of stored crops are likely to have been lifted during the wet period.

From the start of lifting it was already clear that there is an increased amount of quality issues with widespread growth cracking and reports of seed borne virus. With crops going into store wet, we are already hearing reports of above average deterioration and breakdown.

With this in mind it is reasonable to assume that we are likely to see a widening price difference between best and lower quality stocks. Low quality prices are likely to remain suppressed with adequate supply of substandard potatoes. Meanwhile high end prices may climb higher as best quality supplies dwindle and deteriorate in store.

For the processing sector the issue is further exacerbated by the severe conditions in the North of England (Yorks and Humber, North West and North East) which accounts for over 30% of the processing area and 18% of the total planted area.

Two weeks ago (22 October) these regions had lifted under 50% of area and the ongoing heavy rainfall means that significant progress is unlikely to have been made. We are nearing the point where these crops, which have been sitting in wet ground, are unsalvageable.

The North West has been particularly hard hit with above average rainfall in August and reports of flooding throughout the entire lifting period.

Over the next few weeks any crop left in the ground is likely to stay there. The last ADAS lifting report, due out next Friday, will give a more accurate idea of the area still in the ground and what is likely to be left. The loss of area in these regions will disproportionately hit the processing industry potentially tightening the availability of contracted supply and boosting free-buy demand.

We are already hearing reports of breakdown in store from these regions and there seems to be some fry colour issues starting to emerge. Processors will have to carefully manage stocks and pull forward those showing deterioration to ensure that they get the most out of the crop.

For the chipping market, while prices have begun to creep upwards, it is likely to be limited to best quality samples later in the season. Demand from chip shops remains limited with portion sizes remaining at the same size as last year, despite cheaper materials. If processors start having to look further afield for stocks then we could see increased movement of average quality supplies which could tighten supply and support prices.

The amount of waste and breakdown in store this year will be the main factor in determining prices. Storage management will be key over the next few months. If we see above average drawdowns in the first stock releases then this could signal an increased demand for free-buy offering support to prices later in the season.

Aidan Wright

Analyst



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