Seed Corn Costs for 2018

Oh boy, here we are finishing the 2017 corn pollination period and this blog post is going to discuss seed corn costs for 2018. What brings up this topic is that very soon, 3-4 months, corn producers will be making seed purchases and orders. Seed corn company field days will start next month. Will seed corn prices drop for 2018 seed corn? Probably not. Recent articles, and charts, from Gary Schnitkey, U of Illinois ag economist, sheds some light on what might happen.

Schnitkey charts seed corn costs calculated by both USDA and central Illinois farmers enrolled in the Farm Business Farm Management program. The USDA numbers are averages for a high productivity farm. While USDA numbers are for all farm productivity types. The two time-series data sets are 0.99 correlated meaning the two data sets closely follow one another.

As we know, seed corn prices have risen since 2006 at a steep rate, from 2006 to 2014 the increase has been 11.3% annually. Schnitkey (2017) An earlier article from Schnitkey (2015) shows annual cost increases for pesticides, 5.7% and fertilizer, 8.1%, for 2006-2014. Fertilizer costs can partially be explained by increased yields and the need for nitrogen to support those higher yields. Even though corn revenue has dropped, recent seed corn costs have been modest. From 2014 to 2016, USDA shows $3/acre seed corn cost decline while the U of Illinois data showed $2/acre drop. The 2015 Schnitkey article also charted per acre and percentage of revenue seed costs using USDA data. Seed corn costs/bushel for 2013 and 2014 were $0.58 and $0.52 respectively. Seed costs per bushel rose at a faster rate, percentage change, than did yields from 1995 to 2015. The trend for seed costs is upward as a percentage of revenue as well. In 1995 seed costs were about 10% of corn revenue and about 13.5% in 2014. The percentage revenue calculation is a little choppy due yearly variation of corn yields but the trend line is clear.

fdd180717_fig1

fdd180717_fig2

11172015_fig3

11172015_fig3

There are ways to reduce seed corn costs, but significant reductions aren’t likely without price reductions by seed corn companies. How likely is that? A couple of data points give some indication. First, world-wide harvested corn plantings increased about 90 million acres from 2006 to 2016. Schnitkeys’s analysis indicated that 95% of the seed corn price increase can be explained by that rise in corn planting. During that same period, seed corn has added many traits that have value to corn producers such as herbicide resistance, rootworm resistance and some drought tolerance. These two facts and the expected mergers of agricultural technologies companies from 6 to 4 won’t add downward pressure to seed corn prices If the new technologies come from the mergers, prices are more likely to increase since those new technologies have value to farmers. At this point it is probably reasonable to plan for flat seed corn costs in 2018.

Sources:

Schnitkey, G. “Seed Costs for Corn in 2017 and 2018.” farmdoc daily (7):129, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 18, 2017.

Schnitkey, G. “Corn Seed Costs from 1995 to 2014.” farmdoc daily (5):214, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 17, 2015.

Advertisements

Farm Lending Conditions Update

Last week two Kansas City Federal Reserve economists published an update to current, Q2 2017, agricultural lending conditions for commercial banks. Although they discuss current conditions many of the charts included in their article have year over year comparisons for several factors in agricultural lending. This blog post will review some of those factors.

First half 2017 All Non-Real Estate farm loans were 7% lower than same time 2016. But that same category began to decline in 2014. All farm debt made year over year loan increases have been dropping for about 2 years. This pattern has been true for both real estate and non-real estate loans but the non-real estate loans dropped at a steeper rate. Non-real estate loans have a negative year over year change the last few quarters meaning borrowers are likely working to reduce their debt load. (Chart 7)

 

slide7

However delinquency rates started to rise in 2015 back to over 2%. The last time delinquency rates were above 2% was 2013. Still delinquency rates are not at the 11-year high of 4%. The rise in delinquency rates also fits with the lower repayment rate across six Federal Reserve districts. So although farmers have reduced debt yer over year they are still struggling to stay current. (Chart 10) Chart 10 also shows higher demand for loans giving additional evidence that farm financial conditions are tight.

slide10

Source: Kauffman and Clark, Farm Lending Steady, Risks Remain, 14 July 2017, https://www.kansascityfed.org/research/indicatorsdata/agfinancedatabook/articles/2017/07-14-2017/ag-finance-dbk-07-14-2017