It's No secret that the price of seed corn has been on the rise. Better genetics and improved traits have increased that seed's performance — at a cost. With the retail price of the elite corn hybrids now well over $200 per unit, producers can expect another significant price rise. And $300, even $500 seed corn is on the horizon.
Reuters News Service reports that Monsanto plans to increase seed prices for 2009, with some corn prices rising as much as 35%. John Jansen, corn trait marketing lead for Monsanto, says producers in Minnesota, Iowa, Illinois and Indiana will likely see a price increase of up to $85 a bag for elite hybrids, bringing the list price to $340 to $345 a bag.
While input costs have been rising, producers who up until a few years ago were paying $100 for a bag of seed corn may look at $200 as outrageous. “But I think that with the new traits in the marketing pipeline we could easily see large price jumps in the next few years,” says Roger Elmore, extension corn specialist at Iowa State University. “Even with the discounts, I think farmers are resigned to paying higher prices, but they are still negotiating and trying to cut prices where they can.”
“If such increases are in the future, producers don't really have any options,” says Bob Nielsen, extension corn specialist at Purdue University. “If everyone raises seed prices, the only option is to not plant corn. So you pay and plant, or stop producing corn.”
Joe Lauer, professor of agronomy and administrator of the University of Wisconsin's Profits through Efficient Production program, reports that seed corn costs per acre have increased, on average, from $24 an acre in 1993 to $51 an acre in 2007. And 2008's numbers, while not calculated yet, are expected to be even higher. “As overall commodity prices rise, the increase may be easier to justify if producers see additional value in the product,” Lauer says.
“One has to look at the whole package,” says Craig Dobbins, professor of agricultural economics at Purdue University. “It's not just the seed being purchased, it's a package of traits and genetics.” The advent of Bt traits in seed shifted costs from soil-applied insecticides to in-plant insecticides. And glyphosate-tolerant corn has changed the herbicide mix and the cost.
Now seed companies are researching more traits, including increased nitrogen utilization and drought tolerance. “Eventually these traits will become a reality, where growers will have better production with less water, decreased nitrogen costs, or some other traits that will bring value. The price shift is from other inputs to seed,” says Gary Leeper, vice president of sales for Dairyland Seed.
“To a certain extent, there is a belief that seed price increases are justified because producers are getting a better seed,” says Gary Schnitkey, professor of agricultural economics at the University of Illinois. “Compare that to fertilizer, where the price has risen but productivity hasn't changed.
“Producers still believe that high seed corn is worth the cost,” he says. With $6 to $7 corn, it only takes a few bushels to make up a price difference, and producers want the best to get the most out of every acre. “But I still think there is some sticker shock,” Schnitkey adds.
Return on investment
Jansen says producers' choice of seed is the single most important choice they make, because yield drives the farm income statement. “We are measured on the value of the product we provide to the farm,” he says. “Even at a 30 to 40% price increase, we're still the most profitable return on investment.”
Jansen says it's important to keep the increase in perspective. “Keep the price increase in context of the current crop budget,” he says. “In today's environment, a 6 bu. acre yield advantage at $6 corn, with an average seeding rate of 2.7 acres per bag, equates to $100 of additional value per bag.”
Nielsen says that the value of any trait, either currently in the market or in the development pipeline, will be driven directly by the magnitude of improvement. “From a value perspective, there will need to be a yield advantage in order to justify a price increase,” he states. It comes down to the perceived and real value on each farm, and that can and will vary from field to field.
“In general, we look at the value that we deliver to the customer,” says Dennis Judd, marketing director at Pioneer. “Part is the trait, part is the new genetics, and part is the service that we provide. When a grower looks at the purchasing decision, it's more than just the seed. It's the entire package.”
Judd says Pioneer works closely with its customers to look at the value of the products at the field level. “We are helping them optimize their operation,” he says. “We have to deliver value so we all can win.”
Lauer agrees that it all comes down to performance of the hybrids. “And I don't think that producers have to put all their eggs in one basket and plant the most expensive hybrids,” he says. “There are management techniques that can overcome the things that traits address. Producers need to look at these options on a case-by-case basis and look at the trade-offs.”
As researchers and plant breeders unlock more and more yield from each bag of seed, prices will keep moving higher. “It all comes back to the yield decision,” Lauer says. “If a trait is developed that significantly increases yield, that breakthrough would come with an added cost.”
And the basic decision-making process really hasn't changed. “What people were doing when buying seed corn when prices were $2 a bushel is still relevant today,” Dobbins says. “There is more margin in commodity crop production than there has been in a long time. But with fertilizer, seed and rent prices going up rapidly, those margins are probably going to shrink. Given enough time to adjust, those margins may come back to when corn was at $2 a bushel.”
For now, producers are willing to fork over the additional funds to get the best hybrids. “In 2008, our highest-volume products were also the highest priced,” says Brian Humphries, vice president of sales and marketing for Wyffels Hybrids. “Producers want these products. They want insect protection, they want herbicide tolerance, they want the service we provide. It's easy, it's safer and it works.”
And $500 corn? “We believe that through breeding and biotechnology, we can double corn yields by 2030,” Jansen says. If today's average corn yield is 150 bu./acre, and another 150 bu. of yield potential per acre is added to a bag of seed, at $4 corn that's about $600/acre of value. At an average seeding rate of 2.7 acres/bag, that's $1,600 to $1,700 of value in a bag of seed.
“Our commitment is to share value with producers,” Jansen says. “If we can obtain those yield levels, it is well within reason to have seed corn prices well over $500 a bag. When we sit down with producers and ask if they'll spend $500 a bag for 300-bu. corn, they tell us yes.”