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How price affects planting decisions

Publication Date: 
24 February 2017

Amber Cottingham, Analyst, amber.cottingham@ahdb.org.uk, 02476 478698

There are a range of factors that affect planting decisions when growing a potato crop. Most growers to look at what land is available to them, what capacity their machinery and equipment can handle and if they feel the following season is likely to be profitable. However the potato market is notoriously volatile which can make this last point difficult. Whether current prices are an accurate guide of prices the following year or not, there are relationships between market prices one year and planted areas the next.

Last year, analyst Arthur Marshall, looked at this relationship and suggested a possible 3% increase in area was on the cards. The actual area for the 2016/17 season was 116,200ha, or 4% up year-on-year. However, despite this increase in area, the 2016/17 season had one of the lowest recorded levels of production, driven in the most part by poorer than average yields. This has helped support prices throughout the season which, so far, have been second highest only to 2012, when prices were extraordinarily and unusually high.

Background

In 2014/15, a large supply put pressure on prices for the second year running, which resulted in average prices falling by around 18% (c. £27/t) on the previous season. The lower value of the crop contributed to a reduction in the 2015/16 planted area of around 9,000 hectares, or 8%, compared to 2014/15. The 2015/16 season, however, saw record yields, which meant although production was down on the previous year, it wasn’t as low as had been anticipated. Prices began to rise from Easter onwards, as supplies became tighter and at the end of the season they were the second highest on record at that point.

2016/17 subsequently saw an increase in planted area, from 112,000ha in 2015/16 to 116,200ha. Although planted area increased, production fell once again, due to yields being lower than average. This meant prices started high this season and after a brief seasonal decline, started to rise again. The typical expectation would be that high prices this season could encourage growers to increase their area planted again for the 2017/18 season. Figure 1 below shows the historical relationship between the price difference on the previous year and area planted from 1972/73 to 2015/16.

So far this season, the overall average price is approximately £32/t above the same period last year, while the free-buy average is nearly £60/t higher.

When considering that 70% of the time a higher average price has meant an increase in area the following year, it is likely that this year will also see an increase in planted area.

In conclusion

On average, growers are likely to have benefitted throughout this season and last season due to the lower level of production, keeping markets tight and prices supported. The usual result of this would be for the GB planted area to increase. It is worth mentioning that if area does increase this year and yields return to average, there could be a higher level of production than over the last two tight seasons. Should yields perform above average (though of course they could still come out below average), production could be higher again. As always, this reaction to price levels is likely to feed the cyclical volatility cycle of high and low price years.

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