If South American corn producers see substantial reductions in seed prices while multi-national seed corn companies do not plan to voluntarily offer any corresponding seed price reductions to U.S. farmers, that will make the latter less competitive world producers.
Given negative market signals, somebody needs to roll back corn production, and that will be the marginal producers whether they are in the Mato Grosso or North Dakota.
Economics will decide who the lowest cost producers are, but the seed companies appear to be tilting the playing field in the favor of our corn production competitors in South America.
We bought seed corn for the farms we managed in Brazil from Agroceres (Monsanto) and DuPont Pioneer a year ago for just over $300 hectare.
That would be approximately $121 per acre. They plant just over 29,000 population, compared to 36,000 on my U.S. farms.
The $121/acre would compare, given a $300 bag of U.S. seed corn, to $135/acre here a year ago. Our best corn crop in Brazil averaged 199 bushels per acre, which actually beat my Iowa farm average that year, which my son would not let me forget. They won’t come close to my Iowa yield this year.
The farm manager tells me that they will buy their seed corn from Agroceres for $200 per hectare, or $81/acre, for this coming season, while we are told by seed companies here that they intend to charges us the same price as last year or more for our 2015 seed.
By my math, that would make us $55/acre/less competitive growing corn, because of reduced seed costs in Brazil. The Argentine farm manger that we work with says that he bought the same seed that cost $200/hectare in Brazil for $150/hectare in Argentina.
The currency may have impacted that, but that would make their seed cost $61/acre compared to $81 in Brazil, and $135 acre in the Corn Belt.
In Paraguay, Agroceres maintained the sticker price on seed, but offered farmers there more for their corn than the market price to make up for it.
That means if Monsanto and DuPont wanted to buy our corn for $4 per bushel, they could justify charging $300 per bag for seed.
Farmers in South America expect seed prices would fall with sharply lower commodity prices and seed companies in South America are complying.
Seed companies here claim genetics are just so darn good that they don’t have to lower the price. They are good and they produce high yields yet corn is worth less than half the $7 bushel it was two years ago, so the economic benefit of these genetics is not the same as it was.
Brazilian corn farmers are seeing their seed corn costs fall by a third reflecting some of the loss in commodity values. Corn acreage will be off sharply in Brazil and seed companies there are desperate to retain business.
I have been through the DuPont seed plant in Formosa, Goias, Brazil several times and it is a top notch facility. They still use bags instead of bulk seed containers because they send the seed such distances it is too much trouble getting the bulk containers back.
Seed companies can attempt to charge what they want and the U.S. farmer can decide when or if to pay it. They always come at farmers with the tact that the best hybrids are in short supply so you have to get your order in early to ensure getting them.
That, to some degree, is a marketing ploy.
It would appear to me that U.S. seed companies are trying to hold their profit outlook together by ignoring the fact that the profit outlook for U.S. corn growers has changed dramatically.
They are selling their seed to our competitors in South America at steep discounts to what they intend to charge us, because they think you all will pay it. Do you know, the difference in the seed price per acre could equal ARC payments that U.S. farmers could receive from the farm program?
Seed companies will argue that I am not comparing apples to apples as genetics differ between what is sold here and in South America. There is some truth to that.
They have not approved all the stacked traits in South America as here, yet I would argue that the base genetics are comparable and that the huge price disparity doesn’t account for the difference.
The bottom line is that they are lowering seed corn prices by a third or more in South America from a year ago in response to lower corn prices; and they are fighting any reduction in seed corn price in the U.S., putting U.S. farmers at a comparative disadvantage.
Corn prices are now below cost of production and production costs need to come down in line with prices.
U.S. seed corn companies have essentially maintained they think they are immune to lowering seed prices and they can convince farmers to pay higher prices for seed here even when they are losing money.
They are good salesman. It will be very interesting to see if the market will let them do that.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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