Potato Starch Market Report - Q2 2022

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AKV Potato Starch – Market Report

Since December 2021, our customers are facing an extremely turbulent environment, marked by supply chain disruptions, raw material availability issues, unpredictable transportation costs and overall soaring prices. As the summer holidays are approaching, we found it relevant to share our assessment of the current potato starch market, as well as highlighting the major uncertainties affecting the next season.

The Rising Demand for Potato Starch

Corn starch challenges triggered a massive demand on potato starch from last summer, we have been shipping at record levels since September. Our 2 bags packing lines (25 kg PE and 25 kg paper bags) are now booked 5 weeks ahead. The situation is slightly better on big bags and bulk.

As a consequence of this extraordinary level of demand, the European carryover stock (which was significant at the beginning of this season) is expected to be highly depleted at the beginning of the next crop. We forecast this robust demand to last at least until the beginning of 2023, as the situation on corn starch is not expected to improve in the short term.

Over the last three weeks, we have witnessed a surge in requests for quotations for Q3 and Q4 2022 from many new customers. At least 2 European potato starch producers have stopped offering on the spot basis.

Increasing Energy Costs

As for many industries, the war in Ukraine and its consequences on gas supply in Europe could very significantly impact the potato starch sector. Before the war, energy costs accounted for around 25% of production costs. There is a real risk that gas supplies from Russia would stop during the potato starch production season. It is not clear yet if all producers have alternative solutions to ensure continuation of their production.

FSL and AKV together have set up a contingency plan to ensure consistency in supply. However, fluctuating energy costs may impact the product prices during the next season.

 

Challenges in the Supply Chain Management

Supply chain disruptions began during early days of COVID-19, however recent observations indicate better availability of space inside vessels. In major harbours, the goods and container stockpiling is yet a challenge, creating significant delays. Shipment durations between importers and exporters pre-pandemic averaged to 50 days, this figure has now doubled indicating high concerns in destinations such as West Coast of the USA, Chinese main ports, and major transhipment ports in Asia (Singapore, Hong Kong and Malaysia).

In the current context, forecasting the evolution of freight costs is an extremely difficult exercise. We see the market as very volatile and unpredictable. To conclude, it is important to book transportation in due time to ensure the smooth deliveries.

First Estimates of Acreage

As part of our constant efforts on market intelligence, we currently estimate that starch potato acreage has decreased by 4-5% in Europe this spring. We see the decrease at -15% in Poland (possibly higher too). The official figures of -4% in Germany seem a bit optimistic as converging information tend to indicate a much bigger reduction.

The data published by the French department of agriculture shows a decrease of 4.8 % (-3.5% vs the 10 years average), as can be seen below (in x 1000 ha):

 

In Denmark, thanks to less pressure from the French fries industry and fewer alternative crops, the acreage has increased by 10% as compared to last year, however still 4% lower than the 2020 acreage.

Growing conditions:

In Northern Europe, starch potatoes have mostly been planted in April and early May, in very dry soils. Although the weather has been dry and warm, growing conditions are currently good all over Europe. However, dry soils mean that sufficient rainfalls will be needed in July- August to ensure a good crop.

AKV‘s commercial approach for the next crop:

Given the existing high demand at least until the beginning of 2023, and due to major uncertainties listed above, quoting into 2023 is challenging. We expect to start offering for 2023, by around mid-August 2022.

Further clarity of the challenges related potato starch crops and markets are expected by mid-August. Around this period, further accurate data on acreage and growing conditions in the major European potato growing countries, as well as the latest developments on markets would be available.