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Tuesday, November 17, 2015

Corn Seed Costs from 1995 to 2014

ifr151120–149
Corn Seed Costs from 1995 to 2014
Gary Schnitkey, Agricultural Economist - University of Illinois

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The price of seed corn has gone up a lot over the years. Not as much as the price of farmland, but as Todd Gleason reports, it is no distant second.

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Over the eight years from 2006 to 2014 the per acre cost of seed corn increased 164 percent. The really big increases came in the first four years, ’06, ’07, ’08, and ’09…which happens to correspond with the primary the build out of the ethanol industry in the United States. Gary Schnitkey thought these numbers, pulled from the state’s aggregated FBFM - that stands for Farm Business Farm Management - record keeping service were pretty interesting. So, he decided to look at the increase and think about the seed corn industry.

Schnitkey :40 …we’ve had some pretty large increase since then.

Quote Summary - It’s interesting. Between 1995 and 2006 seed cost increased at an average annual rate of five percent. Then from 2006, through 2007, 2008, and 2009 we had double digit seed cost increases. Since 2010 the increase is back to five percent. So, we saw really large increases in seed costs when corn begin to be used for ethanol more and we’ve had some pretty large increase since then.

The cost of seed in the mid–1990’s as a percent of revenue was about 10 percent. Today, even after backing off from the annual increases, the cost as a percent of revenue takes a bigger portion of the pie, about 13 percent.

Admittedly, Gary Schnitkey says the options a farmer has to control seed cost are limited. They could purchase lower cost hybrids, but they might give up yield in that case. Or they could cut population rates and plant fewer seeds per acre.

Schnitkey :56 …tried by seed companies up to this point.

Quote Summary - The only real way to get a substantial cut in seed cost is for the companies to reduce the price of seed. That doesn’t seem likely at this time. Having said that, seed costs are revenue to the companies. Over the past several decades seed revenue has increased a lot not only from a cost or price per acre perspective, but from the total number of corn acres planted and this has caused significant revenue increases. Today seed companies are looking at more modest revenues from their seed businesses, such as Monsanto, Dupont and Syngenta. To some extent this is causing the merger discussions. There is less growth, and merging is one way of keeping the revenue streams going.

This is one of the reasons Schnitkey thinks the merger discussions are happening. Somewhat interestingly, he points out, lowering seed cost has not been a strategy tried by seed companies.