Thursday, 7 May 2020
End-March chipping supplies
Last week saw the release of our end-March stocks estimates. Fresh bags and chipping stocks that remain in grower ownership at the end of March were estimated at 157.3Kt. This shows a 49% drawdown from end of January, suggesting 151.6Kt moved from grower ownership in that time.
The movement out of stores from January to March in percentage terms was around the 5-year average for this sector. However in actual tonnage terms, was down 12.2Kt versus the 5-year average Jan-Mar drawdown. Despite movement following usual trends it is important to note that the closure of almost all fish and chip shops came towards the end of March.
By the end of March approximately 79% of fresh bag and chipping material had left grower ownership which is 2% lower than the 5-year average. However the question faced is; what will happen to the remaining 21% if fish and chip trade remains subdued?
Market situation since then
On 23rd March the Government tightened the restrictions and enforced the rule that all non-essential premises must close. Although takeaway and delivery services could remain in operation, many fish and chips shops were unable to continue operating whilst adhering social distancing rules.
The majority of fish and chip shops were forced to close their doors while they worked out a system that could follow government rules whilst remaining to trade. As a result, sales of bagged potatoes for the chipping market ceased almost completely.
Since then there has been nationwide reopening of shops with an estimated 60% of fish and chip shops now trading again in some form. However, this does not mean that over half of normal chipping trade has resumed. Those still offering services are at limited capacity - able to only offer a pre-order service and/or limiting customer numbers in collection
It has been suggested that many shops currently operating are only doing so at 50% capacity. So not only is there a drop in outlets but a drop in requirements from the remaining outlets too. This will have a continued effect on the market through to the end of the season and a potential knock on for next season too.
From conversations across the industry we know that throughout April the bulk of chipping trade was non-existent for many. Using average monthly drawdown rates throughout the season and a 90% drop in trade in April, end-April stocks could be as high as 151.2Kt.
There is hope that restrictions could be eased a little and there could be a further increase in shops opening and general public visiting such outlets. If May and June were to continue to see an upward trend in the chipping trade we could estimate a best case scenario of a 55% drop from average monthly drawdown. This would potentially leave the end of season (end-June) stocks at over 95Kt.
In July, we could also start to see some early chipping material from 2020 harvest entering the market which will add further pressure.
Due to the timing of the coronavirus outbreak reaching the UK, realistically it was too late for most farmers to alter planting conditions. Commitments to land rental agreements and inputs had already been made.
Based on discussions in recent weeks, it seems, that despite a potentially reduced demand outlook for the medium term, plantings have continued mostly as planned. If we say the area may drop back to 2018 levels, which would allow a cutback of 4% for bags/chipping, we could see the planted area at 18.5Kha. If this were the case and average yields were reached we could face production of 797.2Kt of material for the 25kg bag market (ware and chipping). This combined with the potential surplus from this season of 95.0Kt leaves a total amount in excess of 890Kt.
There are several things to consider here though. We currently don’t know what the planted area for 2020 is and we could have seen a larger drop as a reaction to the situation from March onwards. It is also difficult, this early into the season to predict what sort of yield potential there is. The final thing to think about is the likelihood of the carry over lasting. Lifting in 2019 (and into 2020) was under difficult conditions resulting in some crops not storing well long-term and therefore may not be viable to use into next season.
Throughout most of the season so far there has been a relatively large spread in prices for chipping material in the east. Top quality material with consistent good fry colour stayed firm from end-November through to the widespread closure of chip shops. Lower quality material had more price movement throughout the same time but the spread remained large.
At the end of March, when chip shops closed, we saw the chipping market crash out. For many growers, a price was not available as they were just unable to sell anything. Although this still remains the case for some there has been increased movement of ex-farm free-buy material in recent weeks.
We have seen prices drop from pre-lockdown levels as a result in the lacking demand. The spread in prices has however, continued with a large range in prices primarily based on quality. With the return of chipping trade slow, it is likely that prices will remain under pressure for this sector for the remainder of the season and most likely into next too.
There are several things to keep an eye out that can alter the supply and demand picture in the coming months:
- Lockdown measures changing, potentially allowing more businesses to open and freer movement of the general public
- Tourism trade returning for seaside chip shops if lockdown measures are lifted
- Carry out from this season that is holding quality
- Planted area for 2020 harvest
To calculate demand for the final 3 months of the current season, a 5-year flat average monthly drawdown rate was used. This assumes that total movement from stores from production to end of March accounts for a year’s demands. A flat average is used along with estimated drops in demand of 90% in April, 65% drop in May and 45% drop in June to calculate potential usage.
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