Seed prices going up, but so will revenues
Farmers will pay significantly more for the seed they'll plant in 2013 but make up for it with higher returns on their investment, predicts a Purdue University agricultural economist.
Prices for corn seed are expected to rise 5-7 percent, 7-10 percent for soybean seed and more than 10 percent for wheat seed, said Alan Miller, a farm business management specialist.
That would mean a bag of corn seed would sell for between just under $200 to more than $300, depending on whether it is a conventional or biotech variety. Soybean seed would go for about $50 a bag, with wheat seed priced in the low $20s per bag.
"Seed supplies could be tight," Miller said. "This is especially a concern with soybeans, because farmers might surprise the seed industry by deciding to switch to planting more beans next spring."
He urged farmers to place their orders with seed dealers in the next few weeks.
The summer drought is contributing to the projected price increases but is not the only factor, Miller said.
"We would have expected prices to go up even if we hadn't had a drought," he said. "We've seen seed prices go up year after year for many years. There was a period of time in the early 2000s when producers were transitioning from non-genetically modified-type seed products to GMO types of seed products, which generally are more expensive.
"Then we had the rise in commodity prices. And, recently, we've had two extremely difficult seed corn producing years in a row in the Corn Belt."
Seed companies increased their planted acreage this year, hoping to make up for poorer production in 2011, Miller said. The drought ruined those plans and had an adverse effect on the crop that survived.
"No one could have planned for a drought of that magnitude," Miller said. "Seed quality could be a concern next year."
Fortunately for farmers, they should earn enough from their 2013 crops to more than make up for the costlier seed.
"We've done some preliminary estimates and we're looking at some very high levels of return, with the potential to cover all costs next year, even on our low-yield estimates," Miller said. "It's pretty unusual to cover all costs across all three yield levels - low, average and high - in our estimates."
Miller projects that a farmer growing rotation corn on average-yield soil would generate $560 in crop returns above variable costs per acre in 2013. Rotation soybeans would bring in an estimated $466 an acre on average-yield soil, with wheat generating $372 per acre on that same type soil. If realized, those margins would represent an increase in revenue from this year of 24 percent for rotation corn, 17 percent for rotation soybeans and 51 percent for wheat.
"The economics at current prices for next fall are very good, even with the higher cost of seed and some of the other inputs," Miller said. "I'm expecting a good opportunity for profits, if we can avoid another drought."