Agrifoto

Analysis Potatoes

Potato futures market 2023 has been a disaster

April 26, 2024 - By our team of market reporters

Week 17 is traditionally an important week in potato country. That is the week when the April contract expires. Today (Friday, April 26) was the last trading day for the April 2024 contract, the most traded contract of the 2023 harvest. Potato growers will not complain about the cash settlement price for the remaining positions. Despite all the issues surrounding access to the potato futures market, a bitter aftertaste remains.

The 2023/24 season regarding the potato futures market for the April 2024 contract is behind us. The nearly 700 remaining contracts will be settled at the cash settlement price of Thursday, April 25, 2024, set by the exchange organization EEX at €36.50. That is €0.20 lower than a week earlier. Trading can still take place in the June 2024 contract in the coming weeks, but given the trading activity (or lack thereof), this listing on June 6 (settlement) will be recorded as a market where no trading took place.

Barometer
The settlement of the remaining contracts this season for the April listing may indeed be the highest since the introduction of cash settlement, but the futures market year of the 2023 harvest can be seen as a major flop. The number of open contracts has never been greater than 750, resulting in a very limited number of traded contracts. However, there was every reason to trade as the season saw all corners of the market. There was a slight expansion of the acreage in the EU-4, but the growing conditions were excellent after a difficult start.

The futures market of the April 2023 contract dropped from above the €30 level back to even below €20. After a more than challenging harvest period, with all the consequences for the final yield, the potato market and thus the futures market quickly rose back to €30. Ultimately, with the previous season in mind, the market continued to rise to €35, and at that level, the price increase stalled. A mix of market prices for different varieties (€35 for Fontane to €40 for Innovator) resulted in the final cash settlement at €36.50.

The failure of the futures market season is almost entirely due to the party (Saxo Bank) that had been responsible for financial settlement for years but announced at the beginning of the season (March 31, 2023) that it would terminate its services as of July 1, 2023. The timing of this decision caused major problems for the participating parties. Changes were already anticipated for some time, as the then DCA Finance B.V. had already entered into an agreement with ADM Investor Services International Ltd. to facilitate potato futures contracts. However, the expectation was that Saxo Bank would correctly conclude the season (i.e., futures market listings for the 2023 harvest) and not - as it happened - terminate activities during the most critical time of the year in position building (summer period). It simply became impossible for the participating parties to build significant positions. In short, as mentioned, a failed potato futures market season.

Troubled Access for Growers
The question then arises: how will developments unfold regarding the potato futures market. The structure as in the past, with a number of brokerage offices spread across Europe that settled clients' contracts through Saxo Bank, is a thing of the past. For example, futures market broker DCA Finance B.V. was acquired by ADM Investor Services International Ltd and has been operating under the name ADM Investor Services B.V. since the end of December last year. The potato futures market segment is only a small part of the business activities, but it is certainly offered. In addition to ADM Investor Services, Rabobank also facilitates the potato futures market for its professional clients. The same applies to several other professional entities operating in Europe. As far as is known, potato growers wishing to use the potato futures market can only turn to ADM Investor Services.

The potato futures market in 2024/25 is under a different star than in previous years. It is mainly the significantly higher contract prices that have led to a different risk perception among growers, reducing the need for hedging. Many of the potato flows are fixed, making the price development during the season less important, raising the question of what role the potato futures market can still play. After three consecutive years of high potato prices, growers seem to have forgotten that a market can also emerge that plummets well below production costs. In the past season, we briefly witnessed such a moment when, ex-farm, logistical lines filled up and the market dropped to €10, with no demand.

From 2004 onwards, the need for the futures market and the ability to hedge increased significantly. Persistent low prices led to declining contract prices, prompting growers to seek alternative sales opportunities. This is now forgotten, but a few years of surpluses due to good yields or a drop in demand for fries can quickly change the mood. On the other hand, trees do not grow to the sky, and the market trend of the end product and thus the processing potatoes can change again, with the futures market potentially becoming a valuable tool. Time will tell. Perhaps the potato market in Europe can do without the futures market, but if it disappears, it will never be restarted.

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