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Kernel Cost Analysis

July 26, 2014
By: Ben Potter, AgWeb.com Social Media and Innovation Editor google + 
FJ 032 F14275
If a trait loses some of its value through resistance or other issues, should seed companies adjust its cost? Farmers such as Steve Ford of Decatur, Ala., are asking the hard questions.  
 
 

Commodity and seed prices move unevenly—what gives? 

Seed is rightly regarded as one of—if not the most—important purchases a farmer can make. Paying several hundred dollars for a bag of corn tends to grab your attention, especially when corn is paying less than $5 per bushel.

Some farmers, such as Steve Ford who raises cotton, corn and wheat near Decatur, Ala., join a buyer’s service that seeks out the best price from a half-dozen different wholesalers. But that only gets you so far, he says.

"As an individual, you can’t push prices around too much," he says.

Then there’s the matter of sorting out the trait cost, Ford says. In cotton, the trait is billed separately, so he knows exactly what the seed companies have charged for it.

For corn, however, figuring out that dollar amount is a lot trickier. Tom Burrus, president of Burrus Hybrids, says farmers are actually paying for four things when they purchase seed: the base genetics, the seed treatment package, the trait package and the production cost. This also means that seed prices don’t follow lockstep with commodity prices as they once did.

"When you had all conventional products, the commodity price had a pretty big impact on seed price," Burrus says. "But today the price of germplasm has gone up dramatically. That technology cost is not affected by commodity prices."

Supply, demand and flexibility. The basic economics of supply and demand go a long way in driving seed prices, explains Joe Merschman, president of Merschman Seeds. For starters, the demand for seed corn production did not favor low prices this year.

"If you recall, the two previous years were not great seed corn production years, so demand for acres was full production this past year," he says. "Not a good environment to ask for a price decrease."

At the same time, prices could soften next year, Merschman says. Spring 2014 saw a lower demand for seed corn acres, due to larger carryover inventories, and lower contract production costs, due to lower commodity prices.

Merschman also recognizes that seed companies compete for farmer business, so poorly priced hybrids don’t have long-term survival.

"The value of the product has to compete in the market," he says.

Flexibility has been the operative word the past few years because of a dynamic commodity market, says Drew Porter, North American product marketing director for DuPont Pioneer. Because of that, Pioneer watches seed prices closely, waiting to lock them in until summer. This lets the company go to market in September with confidence.

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FEATURED IN: Farm Journal - Seed Guide 2014
RELATED TOPICS: Farm Business, Crops, Farm Journal, Seed

 
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