EFarmer.us Potatoes Production, Market, and Expected Return December 2008 copyright eStudy.us 2008 [email protected]

eFarmer.useFarmer.us

PotatoesProduction, Market, and Expected ReturnDecember 2008

copyright eStudy.us 2008 [email protected]


Overview• Originated in Andean Mountains• The USDA first included potatoes in crop production

statistic in 1866• The potato plant is a herbaceous annual• Optimum temperature for growth is 64°F to 68°F , but

can range between 50°F to 86°F• The 4th most consumed food crop in the world behind

rice, wheat and corn • 446.8 million cwt produced in 2007



Market Opportunities• Potato Chip Companies for Chipping• Restaurants and Local/Area Wholesalers

– Small “new” potatoes– Russets– Specialty or “gourmet” – Very small “mini” or “creamer” potatoes

• Command premium prices in some markets

• Fresh Market Options– Farmers’ Market– Produce Auctions– Cooperatives– Roadside Stands



Market Opportunities• Average Price per unit in the past

2007

U.S. 407,517 21,547 3,899 27,796 375,823 7.05 2,879,247 2,649,705

2006

U.S. 398,921 23,337 4,482 28,576 365,863 6.65 2,668,287 2,442,474

ProductionUsed for

Seed

Farm Disposition

Sold

Price per cwt.

Value ofUsed on Farm

Seed, feed, household

useShrinkage and Loss Production Sales

1,000 cwt. Dollars 1,000 dollars


Health and Nutrition• The Potato is a good source of dietary energy

Source: United States Department of Agriculture, National Nutrient Database http://www.potato2008.org/en/potato/factsheets.html


Production Characteristics• Loam soils are most desirable for good potato yields;

however potatoes can be grown on wide range of well-drained soil types

• Extensive ground preparation is necessary before planting• 15-18 100-pound bags of seed potatoes are needed to

plant an acre– Only certified seed stock should be purchased

• Seed potatoes should be planted 4 - 5 inches deep and should be spaced 10 - 14 inches apart with rows 24 - 36 inches apart



Production Characteristics• Can be grown on raised beds with black plastic and drip

irrigation• Irrigation (1-1.5 inches a week) • Soil with a pH range of 5.2-6.4 is considered ideal • 90% of US potatoes are planted in the spring (March 15 to

April 10) and harvested in the fall• Potatoes are harvested between 120 - 150 days• Labor needs are approximately 25 hours per acre;

– fresh market potatoes which require approx. 50 hours per acre and then additional 25 hrs for washing, etc.

– Potatoes for chipping require approx. 20 hours per acre for harvesting and marketing


Production Characteristics• Yellowing of the potato plant's leaves indicates that the crop

has reached maturity– If the potatoes are to be stored rather than consumed immediately,

they are left in the soil to allow their skins to thicken • The potato vines should be removed 2 weeks before the

potatoes are dug up• Potatoes are harvested using a spading fork, a plough or

commercial potato harvesters • Tubers should be stored in a humid area ( 90 to 95 % relative

humidity) – 40°F if the tubers are for eating or to be used for seed potatoes

– Processing tubers used for french fries are typically stored at 45°F – Tubers for potato chips are stored at temperatures of 50 to 55 °F



Production Characteristics• Weed Management

– 3 plowings and frequent use of a mechanical cultivator are needed before the soil reaches a suitable condition: soft, well-drained and well-aerated

– Herbicides, A three- or four- year rotation system • Disease Management

• Pest Management– A pre-plant broadcast application of a soil insecticide


• Wireworms• White Grubs•Potato Leafhoppers

• Colorado Potato Beetle•Aphids•Nematodes

• Back leg or soft rot• Rhizoctonia stem canker

• Scurf, scab and viruses• Early blight•Other Occasional Pest


Production Opportunity Cost• Capital Requirements (Land , Building, Equipment)

– Mechanical Cultivator– Potato Harvester (for large production)– Installation of an irrigation system– Plastic Mulch installation– Potato Storage Areas (only for chipping production)

• Labor Requirements – Minimum wage rate for minimal trained laborer in Kentucky

is $9.13• Competitive Crops for Land Resource

– Top 5 Kentucky Crops by Value of Production• Tobacco, Hay, Corn, Soybean & Wheat



Revenue• Revenue sources

– Revenue may vary with price and yield– Seed Production (increase variable and fixed costs)

• Production incentives from the government– Revenue Assistant– Agriculture Management Assistance Program– Commodity Loans



Cost Overview for Fresh Market• PRODUCTION COST

– Variable Cost • Lime• Fertilizer• Seed• Seed Treatment/Cutting• Herbicides• Insecticides• Fungicides• Fuel and Lube• Repairs• Irrigation

– Fixed Machinery Costs– Fixed Irrigation System Costs

• HARVEST & MARKETING COST– Variable Cost

• Marketing Cost• Bags• Fuel and Lube• Repairs• Hired Labor

– Washer– Grader– Bagger

– Fixed Machinery Costs– Fixed Irrigation System Costs



Expected Return ReportProduction 1000 2000 3000 4000

Gross Revenue (Price $8.00/cwt) $8,000 $16,000 $24,000 $32,000

Variable Production Costs $2,651 $5,302 $7,952 $10,602

Variable Harvest & Marketing Cost $3,597 $7,194 $10,791 $14,388

Annual Interest 6% on Variable Cost $88.98 $177.99 $266.95 $355.93

Total Variable Costs $6,337 $12,675 $19,010 $25,346

Total Fixed Costs $800 $800 $800 $800

Total Expenses $7,137 $13,475 $19,810 $26,147

Return to Land, Capital and Mgt $863 $2,525 $4,190 $5,854

Assumptions: 250 potatoes per acre

Cash Flow Statement: See Appendix*Values are rounded for reader friendliness



Risk• Market Risk: Price per cwt changes throughout the year

(timing of harvest is highly important)

• Production Risk: Potato yield and grade vary per acre depending on weather (irrigation systems minimize this risk)

• Financial Risk:– Large initial investment

• quality seeds• machinery• land

– Expected return using Average Cash Flow– Time Value of Money



Basic Summary• Market Opportunity

– Farmers’ Market– Produce Auctions– Cooperatives– Local Restaurants/Wholesalers

• Advantages of Western and Central Kentucky– Early planting is March to April, there is also a late planting from June

to July (weather conditions)– Kentucky farmers have skill and capital to grow potatoes (investment

would be in an irrigation system)– Production for laborers is full time job

– Annual consumption, per person, in the United States is 125 pounds



AppendixQUANTITY UNIT $/UNIT TOTAL

GROSS RETURNS

Potatoes (Table Stock) 1000 cwt $8.00 $8,000.00

VARIABLE COSTS

Lime 2 ton $12.12 $24.24

Fertilizer 4 acre $90.00 $360.00

Seed 60 cwt $17.00 $1,020.00

Seed Treatment/Cutting 60 cwt $2.00 $120.00

Herbicides 4 acre $30.00 $120.00

Insecticides 4 acre $45.00 $180.00

Fungicides 4 acre $75.00 $300.00

Fuel and Lube 38.8 hrs $3.26 $126.33

Repairs 4 acre $40.00 $160.00

Irrigation 32 hrs $7.50 $240.00

Total Production Cost $2,650.57

HARVESTING AND MARKETING:

Bags 4000 each $0.16 $640.00

Hired Labor: Wash/Grade/Pack 240 hrs $8.00 $1,920.00

Washer/Grader/Bagger 10 hrs $1.75 $17.50

Marketing Costs 10% gross return $800.00

Fuel and Lube 19 hrs $3.14 $59.57

Repairs 4 acre $40.00 $160.00

Total Harvest and Marketing Cost $3,597.07

Annual Interest Rate 6.0%

Interest $88.98

TOTAL VARIABLE COST $6,336.62

RETURN ABOVE VARIABLE COSTS $1,663.38

FIXED COSTS

Depreciation on Machinery and Equipment $360.00

Depreciation on Irrigation System $340.00

Taxes on Land $20.00

Insurance $80.00

TOTAL FIXED COSTS $800.00

TOTAL EXPENSES $7,136.62

RETURN TO LAND, CAPITAL, AND MGT $863.38




GROSS RETURNS


VARIABLE COSTS

Lime 4 ton $12.12 $48.48

Fertilizer 8 acre $90.00 $720.00

Seed 120 cwt $17.00 $2,040.00




Fungicides 8 acre $75.00 $600.00


Repairs 8 acre $40.00 $320.00




Bags 8000 each $0.16 $1,280.00



Marketing Costs 10% $1,600.00


Repairs 8 acre $40.00 $320.00



Interest $177.99



FIXED COSTS




Insurance $80.00



RETURN TO LAND, CAPITAL, AND MGT $2,525.43

gross return



GROSS RETURNS


VARIABLE COSTS

Lime 6 ton 12.12 $72.72

Fertilizer 12 acre 90 $1,080.00

Seed 180 cwt 17 $3,060.00

Seed Treatment/Cutting 180 cwt 2 $360.00

Herbicides 12 acre 30 $360.00

Insecticides 12 acre 45 $540.00

Fungicides 12 acre 75 $900.00

Fuel and Lube 116.4 hrs 3.256 $379.00

Repairs 12 acre 40 $480.00

Irrigation 96 hrs 7.5 $720.00



Bags 12000 each 0.16 $1,920.00

Hired Labor: Wash/Grade/Pack 720 hrs 8 $5,760.00

Washer/Grader/Bagger 30 hrs 1.75 $52.50

Marketing Costs 0.1 $2,400.00

Fuel and Lube 57 hrs 3.135 $178.70

Repairs 12 acre 40 $480.00


Annual Interest Rate 0.06

Interest $266.95



FIXED COSTS




Insurance $80.00




gross return



GROSS RETURNS


VARIABLE COSTS

Lime 8 ton $12.12 $96.96

Fertilizer 16 acre $90.00 $1,440.00

Seed 240 cwt $17.00 $4,080.00




Fungicides 16 acre $75.00 $1,200.00

Fuel and Lube 155.2 hrs $3.26 $505.33

Repairs 16 acre $40.00 $640.00




Bags 16000 each $0.16 $2,560.00



Marketing Costs 10% $3,200.00


Repairs 16 acre $40.00 $640.00



Interest $355.93



FIXED COSTS




Insurance $80.00




Gross Return


Bibliography• Overview

– http://www.ers.usda.gov/Briefing/Potatoes/Background.htm• Production Characteristics

– http://www.potato2008.org/en/potato/cultivation.html– http://www.coopext.colostate.edu/TRA/PLANTS/

index.html#http://www.coopext.colostate.edu/TRA/PLANTS/potato.html

• Pest Management– http://www.ca.uky.edu/entomology/entfacts/ef304.asp

• Production Opportunity Cost– http://www.kltprc.net/books/mm2002/Gifs/Fig_16_2.htm

• Expected Return Report– http://www.uky.edu/Ag/AgEcon/pubs/software/

budgets_veg_melon.html• Basic Summary

– http://www.agmrc.org/commodities__products/vegetables/potatoes.cfm

Documents

EFarmer.us Potatoes Production, Market, and Expected Return December 2008 copyright eStudy.us 2008 [email protected]