Sharp price drop potatoes and potato starch results in profit warning China Essence Group

Potato starch manufacturer China Essence Group Ltd issued a profit warning for Q2 FY2012 and H1 FY2012, saying the company expects a loss in these periods due to "unexpected sharp movements in the prices of potatoes and potato starch".


An exerpt of the statement:

 

"The Board of Directors wishes to announce that the Group expects to register loss after tax for 2Q FY2012 and 1H FY2012. This is largely due to unexpected sharp movements in the prices of potatoes and potato starch, which will have an adverse impact on profit margins for the current quarter."

"Due to high potato prices in 2010, farmers were building up their inventory of potatoes at the start of the harvest season this year in August and September 2011, which pushed up prices of potatoes significantly during that period. Consequently, the inventory build-up led to a supply glut in recent weeks which caused a sharp fall in prices of potatoes and in turn the prices of potato starch. This sudden dip in prices was one of the largest in recent years."