Corn seed cost squeeze tightens
With seed costs battling for the highest input, the U.S. farmer is being asked to pay more to grow crops for less of a return in 2014. Compared to a year ago, the corn market is down 40%, soybean prices are off 11% and wheat is down 26%.
Yet, the costs of seed that the U.S. farmer paid (or is currently negotiating) for the 2014 growing season is not dropping, and balance sheets are beginning to show it.
Research by Iowa State University shows that the cost of planting corn following corn (seeds, chemicals, etc.) per acre has bumped from $201.62 (2006) to $376.81 (2012) making the cost per bushel go from $3.40 to $4.94 in those six years. University of Illinois reported that non-land costs (fertilizer, seed, pesticides, drying, storage, crop insurance, machinery, and overhead costs) surged 92% from $302/acre to $581. Although they aren’t measured on identical criteria, the trends show similarity.
For 2014, the estimated cost of corn following corn production, per bushel, in Iowa has been pegged at $4.84, according to Iowa State University. As of Thursday, the CME Group's new-crop Dec. '14 corn price is $4.49. Specifically, the highest listed expense in ten input items, is corn seed at $264 per bag (185 bu. per acre rate).
So, it's easy to see why the farmer is most concerned about the future of seed costs.
It's noteworthy that unlike a farmer's ability to lay off risk through a hedging contract for fuel, fertilizer, and crop prices, seed costs are a 'pill' that just has to be taken.
"Seed is what it is. There is much talk about guys holding out until the last minute to get some panic deals from seed companies left holding the bag on record seed production with the possibility of significantly less acres being planted in 2014. That all sounds good but I think it is mostly wishful thinking.” IllinoisSteve started a conversation in Marketing Talk about inputs and pricing. “I sure there will be some deals here and there but by and large I don't think you are going to see a fire sale on seed. Don't forget seed companies have had a few good years and will probably stay the course on price and burn a little equity to get through this year. Kind of like cash rents."
Think net profit
Though seed companies are hesitant to speak about the future of prices, they are quick to point out that prices, each year, are set on the value of the seed to the grower.
Jerry Harrington, DuPont Pioneer spokesman, says the value of his company's seeds get better each year.
"When farmers are combing over their costs, they should really focus on what seed better fits the acre the seed is going on. What is the best fit," Harrington says.
Harrington adds, "Because a farmer's goal is to get the greatest yield, don't cut back on your trait of choice. And choosing the right genetics is the most important one to make when choosing yield potential."
Other benefits that Harrington sees that proves value to the farmer include: greater yields on refuge acres, better genetics, higher performance in water-soaked environments, and increased seed treatments to fight off pests and early planting issues.
“Farmers who only look at bushels an acre may actually be losing money and never know it,” shares Blacksandfarmer in Marketing Talk. “It’s all about net profit.”
Surviving tight margins
Most farmers have already purchased their corn and soybean seeds for 2014. In general, companies set prices in late August and early September of 2013. The reality is, the big fallout of the crop prices hadn't occurred yet. Now, corn and soybean prices are much different.
Farmers that haven't priced their seed may have a chance to take advantage of the anecdotal 'price war' that may be going on between companies looking to capture marketshare.
Farmerguy89 straight up says, “The guys that are going to survive are the ones that negotiate.”
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At least one regional Wisconsin-based seed company reports the lowest amount of cash pre-paids for seed orders in awhile, this year.
A late 2013 harvest season has kept some farmer-customers from paying for seed supply early. In addition, because of talk that supply is plentiful, farmers may have some leverage in price negotiations, according to people close to the industry.
"Even though seed is bought for 70% of a farmer's acreage, there may be uncertainty for the remaining 30% of those flex acres. Plus, a farmer may have put an order in, but if it isn't paid for and not shipped, there could be some undercutting on price," the Wisconsin-based seed representative, choosing anonymity, says.
Don Doyle, an Iowa Independent Sales Representative for Pioneer, agrees that farmers are concerned about what could happen with their input costs if the markets stay lower.
"Farmers are asking about seed costs, for the future. Seed, chemical program costs, fuel and rents, all are impacting the operation's cash flow," Doyle says.
While seed prices vary from company to company and producer to producer, corn-on-corn seed can range from $260-$285 per bag, while corn following soybean seed varies from $240 and higher. It's important to note that prices vary due to discounts and acreage units purchased.
Although input prices have soared in both Illinois and Iowa, we may have hope for some decrease, historically speaking. A University of Illinois report shows that the price jump from 2006-2012 shows likeness to prices from 1972-1984. Yes, it’s comparing a 6-year span to a 12-year block, but after that rough financial period the input costs decreased from 1984 until 1988.
According to Iowa State’s report, corn following corn production input costs (for seed, chemical, etc.) is already on the downhill slope. In 2012, these costs were $376.81/acre moving down to $372.43/acre (2013) then $340.27/acre (2014).