It's tough being a small player in a big field. But about 250 regional seed companies are doing just that — competing in the massive U.S. corn and soybean seed market. Combined, regional companies hold 40% of this market. But individually, only a few can count market share above 1%. As a result, successful regional companies are constantly learning to carve out a niche in the highly competitive business.

Beck's Hybrids, for example, has staked out a 140-mile market radius and aggressively sought to meet customer needs in that area. “We decided that we would carve out our area and be one of the three to five major players delivering product to a customer,” states Sonny Beck, president of the Indiana-based company.

The strategy has worked. Beck's is the second largest seed company in its market area. But if you go outside its defined area, you won't find Beck's seed for sale.

The soybean seed market doesn't lend itself to geographic identification as well as corn does. So regional companies such as Iowa's Latham Seeds carve a niche by finding innovative ways to help customers. Latham's latest development is selling soybean seed by seed count. Next year's seed will be sold in 140,000-seed units instead of 50-lb. bags. It also was the first in its area to market CystX soybeans, which are highly resistant to soybean cyst nematodes.

Dairyland Seed takes another tack. “Our focus is to improve the engine in the car,” reports Tom Strachota, president. “The real engine driving seed is genetics.” So the company puts 15% of total sales into a research and development budget to improve plant genetics.

“Traits can be extremely valuable, but as traits gain market share, they almost become commodities,” Strachota says. “One problem with Roundup Ready soybeans is everybody has them in their lineup and every company has reasonably good products. So you have to have very good products and products that you can prove are better.”

Regional contraction?

While regional companies work to stay competitive, many challenges lie ahead, including trait licensing and pricing issues. Next year, Monsanto's agreement to license traits to Holden's Foundation Seed/Corn States ends. Monsanto's licensing across the 250 regional companies may start to contract.

“In my opinion, you will see another consolidation of the seed industry when we don't have [Holden's] to protect broad licensing,” Beck suggests. “We're going to prepare for what looks like a narrowing of the industry. I hope I'm wrong, though.”

Seed industry consultant Tray Thomas thinks Monsanto will tighten its licensing agreements with regional seed companies that have been slow to pay or difficult to work with or that don't abide by the rules. But he doesn't think the market share of smaller seed companies will change. “I imagine that, slowly, the number of seed companies will decrease but the share of the companies will stay the same,” he says. “They are too valuable of a distribution point for Monsanto to cut them off.”

Uneven playing field

Seed trait pricing represents another point of concern for regional seed companies. Monsanto's recent announcement of a price hike for Dekalb and Asgrow Roundup Ready (RR) soybean seed highlights this issue. (See “Roundup Ready price increase,” page 11.) The regional companies that license RR technology assume they also face a similar price increase, even though this information is confidential.

Regional companies say they must price their seed against other major seed companies that don't pay high technology fees for RR traits. “In soybeans, it is an uneven playing field in that we suspect that some major players pay either no royalty or a highly reduced royalty on RR soybeans,” states Bill Latham of Latham Seeds. “It is a matter of competitiveness to us. We can be highly efficient and still be less competitive in the marketplace if these other players decide to play the price game.”

Strachota agrees: “Roughly 60% of the seed market including Pioneer, Monsanto, and Syngenta have a unique cost basis for RR soybean technology. The remaining 40% of the market are Monsanto seed partners. These are companies that, when selling RR seed, must accept whatever level of tech fees or royalty is required.”

John Raines, Monsanto's director of U.S. marketing, says the company does have licensing agreements with other companies and the agreements are confidential. But it is still up to each seed company to price its own seed. “We know that if our technology and system doesn't offer greater value than other choices that the farmer has, they ultimately will choose somebody else's seed,” he says.

“We do have wonderful relationships with our seed partners. And we chose the path of broadly licensing our technology a number of years ago,” Raines adds. “We are committed to that strategy today because our customers want the technologies and they want to have a choice of the brand they want to buy.”

Trait boom

There is no doubt that Monsanto's wide licensing of its premium seed traits has helped regional companies while helping Monsanto. “Technology has improved our products for a whole bunch of reasons,” reports Gene Kronberg, NC+ Hybrids director of sales and marketing. “It's important environmentally. It has improved yields. From a supplier standpoint, it means a shift in where margins are generated [to seed]. And we can access some of the most up-to-date technology available.”

Kronberg also thinks that Monsanto wants to work with regional seed companies like NC+, located in Lincoln, NE. “They need us to help them get that technology out to folks,” he says. “I think they truly understand that. I think they look at NC+ as a key player, especially with our strength in the West.”

The big question ahead is what will happen when another major seed company like Syngenta offers to license traits that compete with those offered by Monsanto. Will regional companies have enough room in their Monsanto licenses to take on competing traits?

The answer will come in a few years. Syngenta is expected to offer traits similar to Monsanto's by 2007, if goals for its newly acquired Golden Harvest and pending acquisition of Garst Seed are achieved.

Meanwhile, regional seed companies are examining their future in the seed industry. Strachota says, “Yes, we are competitors, but we have a lot in common. The aggregate is a very sizeable, powerful market segment. But individually, no company remains that strong.”

Here's a look at how four independent Midwest seed companies position themselves in the tough regional seed market.

Dairyland Seed

Located among dairy operations in Wisconsin, Dairyland Seed focuses on soybeans, corn and alfalfa for the north and central Corn Belt. It has built its presence by differentiating its product lines from those of competitors. In soybeans where Strachota says they rank fifth for share of the U.S. market, Dairyland focuses breeding efforts on soybean cyst nematode resistance. “It is still a challenge because the highest-yielding products are still cyst susceptible,” Strachota adds. “The most cyst-resistant products are on the lower end of the yield spectrum.”

Dairyland also is offering unique stacked soybean varieties for 2005 that include RR and STS tolerance, a trait from Dupont. Dairyland has offered the STS trait since 1993 but only recently received permission from both Monsanto and Dupont to stack the two traits. Together, the traits should help growers obtain one-pass control of weeds in soybeans, Strachota says.

Dairyland has one of the largest staffs of corn plant breeders in the independent segment of the industry with four corn breeders. The company relies on their efforts to seek the best products for its geographic area. “We can focus our efforts on the markets we serve and go with the best products instead of making trade-offs to take a product that will be adapted more broadly across the entire Corn Belt,” Strachota explains. The company also specializes in the corn silage market with a new line of hybrids called highly digestible forage (HiDF) hybrids.

Dairyland is a major player in the alfalfa seed market with the first hybrid alfalfa product ever sold. It took a Dairyland Seed researcher 24 years to develop the hybrid alfalfa. But today the company is seeing the rewards with strong sales and a second hybrid line coming onto the market soon.

Looking ahead, Strachota says the seed business will continue to be challenging especially for regionals like Dairyland. “We're all working at the same question of trying to maintain and improve the bottom line so we can build our future while selling seed at the highest prices ever due to technology fees,” he says. “And we're finding our seed margins are squeezed due to the cost of technology that regional seed companies pay. That's a big challenge. It will take more precision in running a business. There is much less room for error, whether small or large.”

Beck's Hybrids

In the early 1990s, Purdue University asked Sonny Beck to prepare a paper on the future of small- and medium-sized seed companies. What he learned changed the course of Beck's Hybrids. In the paper, Beck wrote that, by 2000, one-third of the companies would be gone, one-third merged with others and only one-third would be known by their own name. Would Beck's be among those still in business under its own name? It was going to take a change in strategy to ensure Beck's future.

“We decided we were going to succeed by carving out our area and saying we will be one of the three to five major players in it to deliver product to a customer,” Beck explains. “There is only room for three to five major players in any given market in a capitalist society.”

The company embarked on a plan to increase sales 20% a year for five years. It increased its market area by moving from a 90-mile radius of Atlanta, IN, to a 140-mile radius. Then Beck's added district sales representatives to the payroll. As a result, the company met the 20% growth goal each year and continues to post impressive sales growth today.

Beck says the company now is the second largest seed provider in its market area. Being a major player is important to keeping access to traits and other seed products. “The strategy is to be a big enough player in a certain area that [other seed companies] have to deal with you,” he explains. “If you're going to sell in this area, you're going to know we're here.”

To survive in the future, the company must help customers select and grow the best products for each field, Beck says. “We will survive by giving that grower the very best agronomic information on how to plant that $200 bag on that field so he has success,” he says. “If we're good at it and they trust us, they'll be back next year. You better be good at helping the grower get the most from every acre he has.”

NC+ Hybrids

NC+ seed company describes itself as a large regional, small national seed business headquartered in Lincoln, NE. Owners of the company are seed corn producers. “We stress that we are independent and not owned by any outside investors or corporation,” reports Ken Anderson, marketing manager, “although we have some pretty significant seed partners like Monsanto, Gustafson and other companies that we work with.”

NC+ markets seed in 24 states and has always had a strong presence in the western High Plains. Drought has lingered in this area for five years, which has been tough for growers and seed companies like NC+.

But Gene Kronberg, director of sales and marketing, says NC+ is poised to thrive in the future. “We are genuinely optimistic about the seed business,” he reports. “Things have happened in the last year that have us feeling good about the future.” The ag economy is generally stronger this year than in the past years. “If farmers do better, we do better,” he says.

Seed with European corn borer resistance and corn rootworm resistance stacked with RR has improved the company's products. “Now finally, growers are seeing the value of technology,” Kronberg says. This has changed what NC+ offers for hybrids. This year, only 11 hybrids were conventional compared with 44 conventional hybrids in 2000.

“We can access some of the most up-to-date technology available,” he adds. NC+ is a seed partner with Monsanto and views that as crucial for its future success. Both Kronberg and Anderson believe Monsanto wants a good relationship with seed partners like NC+.

With these factors coming together, Kronberg and Anderson think that regionals like NC+ are ready to take more market share. “We've survived the storm of the last five to six years and we feel like we're in a pretty good position to take off here,” Anderson reports.

Latham Seeds

A 100% soybean seed company, Latham Seeds has seen the business of selling soybeans change dramatically since RR technology entered the market. Bill Latham, president, doesn't expect that to diminish in the future. “We're going away from soybeans as a number-one grade commodity to a lot of different soybean end products,” he says. “That will mean many different types of genetics, traits and characteristics. The identity-preserved part of the business will expand greatly to separate different soybeans for different needs.”

Latham Seeds has gotten into the market-specific soybean business by selling soybeans for food to several family businesses in Asia. Latham says regional seed companies are better able to meet specific end-use customer needs like this than national seed companies, which sell in a broad market.

The CystX trait has been popular with growers battling soybean cyst nematode, Latham says. It will take meeting the specific needs of growers through products like CystX to stay competitive in the soybean business.

Latham Seeds sells soybeans in a six-state area surrounding its home office in Alexander, IA. The independent soybean seed company isn't quite as independent as it used to be. Latham says, “We have partners, the owners of the traits, so in a sense, this business is not as independent as it once was. While Monsanto gives us incentives to stay with their traits and programs, we do have the freedom to look elsewhere. We do appreciate that Monsanto has broadly licensed their traits.”