2012 Acreage Management Program

A look back at supply management: Then and now

Jerry Wright returns to lead United Potato Growers of America

Strength in numbers

Thinking ahead to 2012-13

Appreciating the laws that foster farmer cooperatives

You deserve higher returns

By Lee Frankel, President/CEO
United Potato Growers of America

The power of potato growers coming together to share ideas and information is an incredible sight to witness. Potato growers from around the country and Canada met in Minneapolis in June to attend the United Potato Growers of America sponsored red and russet potato crop transition conferences. One of the sessions included a discussion on simple steps that growers could do on their own to make better informed and ultimately more profitable decisions in the marketing of their potatoes. I have summarized the highlights of the discussion below to encourage growers to be proactive in the marketing of their crop.

Many elements that determine the price of potatoes are beyond a grower’s immediate control. These include weather, consumer confidence, currency exchange rates, long-term demand, retail pricing strategies and transportation availability.

Nonetheless, a grower is not powerless and can impact returns to the farm during the crucial out-of-field season. A grower’s sales organization must find a way to build demand for a grower’s product from no shipments one week to a heavy shipping pace the following weeks. The fundamental cause of a grower’s sales organization needing to reduce price is an increasing inventory of packed, yet unsold product on the floor of the packing house.

A sales organization traditionally can increase demand for a grower’s product by temporarily gaining a customer through offering the cheapest price. However, this is usually only effective for a few hours until your neighbors match or beat that price. In addition, prices will continue to fall until enough growers stop harvesting or move more potatoes to storage.

The other method that has proven to increase the total volume of potatoes sold is through promotions with retail customers. Promotions tend to have the added benefit of increasing the overall demand for potatoes in the short run rather than just churning customers between the low price leaders.

A grower who understands his or her farm’s production costs and is willing to lock in a profit can give clear instructions to the marketer well in advance of harvest. This allows the marketer time to shop for a deal that meets the grower’s needs while also serving the needs of the retailer.

Fire sales resulting from heavy floor inventories can also be minimized by closer communication between the grower and the marketer. The market will be changing constantly during the transition period. The prices for a particular pack type the day a vine is killed will be different than three weeks later when potatoes from that vine arrive on the market. Communicating information about vine kill dates, size and yield from sample digs at vine kill, and the expected market are key elements for growers to share with their marketer.

My message to growers is to reward yourself with better returns from your potatoes with only the time and effort that it takes to increase the frequency and accuracy of the information between you and your marketer. You deserve the higher returns. 

Reading tea leaves just doesn't work all that well

By Buzz Shahan, Chief Operating Officer
United Potato Growers of America 

Things were different in the old days. I remember meeting with the late Frank Barrett of Muleshoe, Texas. We were comparing reading potato market tea leaves prior to planting to basing planting decisions upon a reliable potato-market database. He said, “I don’t know how many times I’ve gone to the bank and borrowed more money than our land was worth to grow a crop of potatoes with no idea of what the value of that crop would be when it eventually got to market.”

Times have changed since my conversation with Mr. Barrett. Because of the work of the United Potato Growers of America Supply and Demand Committee that contributes untold hours of hard work and good math, North American potato growers who are members of United now have sufficient information to make solid marketing decisions.

But in spite of hard work and good math, in spite of solid profits for five of the last six years, the process could still further guard against unnecessary price slippage. The May to September transition period — when storage supplies decline until storages are again filled — still presents significant challenges in terms of stabilizing price. Additionally, any market mismanagement occurring during this period usually persists into the following calendar year regardless of balanced supplies.

Considering the wild dynamics inherent in summer’s out-of-field shipments, what key informational points would be of greatest assistance to the person on the sales desk in maximizing returns for his grower? The informational points identified that will best support the particular sales individual in stabilizing out-of-field movement and price in the grower’s interest, on any given day, are:

1) What does the crop I must sell look like?
• Specifically, what will be my crop’s volume, profile, quality and timing, day-by-day, for the next thirty days?
2) What does the crop from all competitive summer areas look like?
• Specifically, day-by-day, what will be the volume, profile, quality and timing of crops from all summer areas with whom I must compete for market share during the next thirty days?

Supplying sales personnel with a reliable day-by-day market map enables the sales desk to secure the best possible outcome for the grower’s crop. Without filling this informational gap, those on the sales desk are back to reading tea leaves and the grower is back to waiting to see how things turn out.
 
The answer to this sales desk dilemma lies in tightly tracking the expected volume, profile, quality, and timing for each area each day and week as far into the future as possible. And, how far forward is that? Within days of a field or block being killed for harvest, it can be precisely sampled regarding volume, profile, quality and timing. Three weeks from vine kill to harvest are usually required to fully mature a potato crop. Three weeks of advance expectation adds greatly to the efficiency with which a sales person can perform. 

Contact the United office at 801-517-9000 to learn more about sampling methods used successfully by potato growers around the country.

Perched on a cliff

By Buzz Shahan, Chief Operating Officer
United Potato Growers of America

This summer’s on-farm potato price promises to be perched on a cliff, high up in the air. This is what happens when nature trims yield. The consequence of price being so high is that, historically, it then falls too far. The last great fall began in August 2008. For the next 18 months, from August 2008, until February, 2010, Idaho grower returns fell from about $18 per hundredweight to a low of about $2.50 per hundredweight. Other potato producing areas experienced a similar slide. Why?

Two principal reasons:
1) unsustainably high pricing in August 2008
2) increased production in 2009

Increased production in 2009 happened in spite of well-researched numbers warning the grower what to expect if plantings reached a certain point. Plantings not only reached that certain point, they exceeded it. Good yields added their portion.

The grower now faces a situation similar to 2008. No one knows how high price will go this summer until we see if growers around the country held sufficient potatoes in storage to maintain shipment levels high enough to satisfy demand, or come close to satisfying demand. Last summer, when supplies in other areas ran low, Idaho had sufficient stocks on hand to fill the gap. 

Those potatoes don’t exist now, at least at 2010 levels. Now, the potatoes needed to satisfy this looming supply shortfall must come from the new crop. The new crop poses a challenge as it will enter the market from various areas simultaneously. And the challenge is this: Can growers manage their individual volumes such that price only experiences an adjustment and not a collapse?

The composite individual actions can cause a price collapse or limit market price adjustments.  Each grower and each cooperative will have an opportunity to measure its individual actions and potential impact on whichever outcome occurs. Personal responsibility to monitoring supply and decisions about production can be critical to the result. 

United Potato Growers of America is sponsoring crop transition conferences on June 9 to update the industry about these concerns. At the conferences red and russet growers will convene in Minneapolis to address this year’s crop transition difficulties. Think of the tens of millions of dollars at risk if growers try to navigate this without the information available at the meeting. Today’s potato grower has enough experience and can get enough information through United to analyze this problem spot and manage it. Your trip to the conference could cost less than the price difference in a single load of potatoes entering an adjusted market compared to entering a collapsed market. 

These crop transition conferences are sponsored by United Potato Growers of America, as public meetings and not official meetings of the cooperative where there would be limited Capper-Volstead antitrust protection. In the absence of Capper-Volstead and related antitrust protection, the antitrust laws prohibit certain actions such as price fixing, supply management, allocation of products or customer or similar actions. The conference seeks to exercise cooperative marketing act rights while avoiding any actions which would violate the antitrust laws.

No one ever went broke making a profit

By Lee Frankel, President/CEO
United Potato Growers of America

A wise potato grower recently told me that “no one ever went broke making a profit.” 

Earlier this year potato growers had a chance to make a profit by locking in forward contracts for virtually all of their rotational crops over the winter. Growers were in the perfect position to plant enough potatoes to meet known demand without needing to take a risk speculating on a possible weather disaster in some other production region. When the spring planting acreage reports are completed, we will see if growers put themselves and the industry in a position for continued profitability.

Even if growers everywhere managed to make the perfect calculations of their expected yields and real demand levels, and the weather cooperates to give us those yields, growers will still have plenty to do to make sure the market produces desirable returns. Growers may remember that even though supplies were manageable from the summer of 2008 through the following summer, prices declined for almost the entire period. Likewise, we have seen brief periods this spring of declining prices even though total supplies were limited.

What can we learn from history? What do we need to remember about the market to make sure that we don’t pass through another period of steadily declining demand and declining grower returns?

History has shown that communication at all levels of the marketing chain is critical to encourage strong demand and positive grower returns. This communication starts with the grower giving timely information to their sales agency regarding volumes and size profile information for their crop. 

Equally important is accurate communication with the retailers and food service wholesalers that help make sure the industry’s potatoes reach the consumer. Without clear information, retailers are unable to effectively promote potatoes to the consumer and restaurants may reduce their portion sizes and even offerings of potato products if they are unsure of future pricing and availability.

Member growers of red potatoes in the upper Midwest have used the United legal umbrella to coordinate the supply chain to achieve excellent returns through effective communication and promotions. Growers who understand their cost structure and who are willing to lock in a profit have achieved great success. They do this by pre-selling a portion of their crop to allow for retail promotions and to reassure food service operators of a consistent supply, which keeps their potatoes on the menu. 

Too often, growers feel that they have lost an opportunity by pre-selling a portion of their crop that may ultimately be at a price lower than the prevailing price once the product is shipped. However, when growers do not allow their sales agencies the opportunity to promote potatoes, the end result is that the market is unable to absorb the volume of potatoes that are being shipped and prices soften. 

As the market moves to more ample supplies over the next few months, growers’ willingness to lock in profitable promotions will go a long way in assuring strong markets and strong demand for 2011 and 2012.

Working together

By Lee Frankel, President/CEO
United Potato Growers of America

In my three years with United Potato Growers of America, I’ve spoken with potato growers from Washington to Florida, Maine to California, North Dakota to Texas and a grower or two based in Alaska. I have noticed that while each grower is unique, there are personal characteristics that most of the growers have in common including the often observed fierce independence. For most growers whom I have spoken to, in their professional life, the second worst thing in the world is to be told what to do. No one  would argue that the only thing worse to a potato grower is losing money.

United provides the forum and legal umbrella for grower members to make their own decisions about what the market will be so they can focus on meeting the needs of the consumer rather than being dictated to by intermediaries. A federated co-op, United gives its 10 member co-ops the tools necessary to better understand what demand is likely to be and the number of acres that need to be grown to meet the demand of the market at prices that are economically sustainable for the grower. Each member co-op then provides additional information that is shared with its members. 

The unknowns are what the weather will be in each region during the season, what will happen to the exchange rate for foreign trade, which food product will be announced as the latest fad or what exactly the size profile or pack-out will be. But, like-minded growers working together under United who follow grower-developed acreage recommendations can get close to the right production levels every year with price stability resulting. 

This system of growers working together is critical in the current environment where per capita fresh potato consumption has been flat or declining for most of the last 35 years. The U.S. Potato Board is doing a remarkable job of spurring consumption recently and has provided valuable tools for growers and marketers to better serve consumers. Many growers have reinvented their product line with packaging and varieties. Growers have also improved their service and support of their customers while using USPB tools to align themselves with retailers and food service companies. 

However, even a grower who has managed to come up with a better product or service is not immune to what is happening in the total market. An analysis by a University of California at Davis professor shows a strong correlation of prices between all types of potatoes and all regions. In the past a grower would expand operations and costs to meet the anticipated demand of his or her customers only to be overwhelmed by a tsunami of losses generated from too much total supply on the market.

United helps to avoid this outcome by pulling growers together off of their islands by giving them a forum to understand the whole market. While each grower is indeed unique and special, the United system leads to the best possibility of growers being rewarded for their hard work and innovation.