Farm Industry News

Trait Rates (Why Prices are up)

Producers have ever-increasing options when it comes to buying seed in 2008, but those new traits are expected to come with a higher price tag.

Corn and soybean seed prices are expected to increase once again for 2008, fueled by an increase in the costs of royalties for genetics and technology (traits) as well as strong underlying commodity prices.

How much prices will increase has yet to be determined, as seed companies and technology providers finalize pricing schedules, but early indications are that fees on some traits could see a big jump.

The sharp increase in the price for underlying commodities — corn and soybeans — also means that seed companies are competing for seed acreage. “Costs are going up,” says Chuck Lee, head corn product line for Syngenta. “There is a significant increase in the costs of planting crops, it costs more to register products worldwide, and there's more regulatory approval costs.”

A report on in late June fueled the speculation, with one industry analyst reporting that “the value of [Monsanto's] products — in a world where bushels of corn go for $4 — has now perhaps opened up an opportunity for price increases of $15 to $25 per bag for elite, multi-trait hybrid seeds in fiscal year 2008.”

Yet producers are buoyed by solid corn and soybean prices, and there's confidence that the traits tucked into each seed are worth the investment.

“Seed corn prices are on the rise, but in the grand scheme of things they are carrying their weight by increasing the crop's performance,” says Roger Elmore, extension corn specialist with Iowa State University.

Costs of production

With elite corn hybrids well over $200 per unit and soybeans at the $35 per unit range, producers aren't likely to see a dip in prices anytime soon.

“Certainly there is a higher cost than ever before,” Elmore says. “But the costs involved in producing seed are also increasing. It costs money for research, transportation, product development and marketing. The prices are going up, but we must remember that transgenics are simply protecting yield. We must focus on increasing genetic yield potential of corn.”

Heavy investment in technology and genetic improvement, funded by the dollars generated from seed sales, is boosting the bottom line in yields. “Over the last 20 years or so, yields have increased over 2 bushels per acre per year in Iowa and a little less than that nationally,” Elmore says. “Transgenic traits along with breeding efforts are helping to keep this going. We are getting more out of our seed than we used to.”

The crux of any seed company's portfolio is finding the product that consistently performs in a farmer's field. Trait insertion is an important part, but there's also the pure genetic part of seed development that's done with conventional breeding. That takes time and money.

“Monsanto's focus is increasing farm profits and yields, and we believe it is important to bring out seed and trait systems that increase yield and profit to farmers,” says Tami Craig Schilling, spokesperson for Monsanto. “For farmers to continue to increase yields to meet the accelerating demand for grain, they need high-yielding seed and trait systems that Monsanto is in the position to deliver. If a bag of seed continually yields more grain and delivers more profit to the farmer, it is realistic that its price will go up accordingly. We believe that the step change in yields that U.S. farmers are experiencing is just the beginning of an exciting time in the ag industry.”

For all the seed products that are on the market now, there are many, many more that never made it. Couple that investment with the additional costs of worldwide regulatory approval, and many millions of dollars are spent before a product even appears in a seed catalog.

David Bubeck, corn research director for Pioneer, says the world of seed research and development has become complex and highly orchestrated. “Each scientist and researcher is highly specialized. Not only is there the trait developments, there is also entire genetics research,” he says.

That research involves crop breeders, scientists and support staff that can be a large part of a seed company's budget. Overall, research personnel can account for 25 to 40% of a seed company's staff.

“We have made a significant long-term investment in our corn and soybean breeding program,” says Tom Strachota, CEO of Dairyland Seed. Dairyland invests 15% of its revenues in plant breeding.

Value increase

Raymond Massey, crops economist with the commercial agricultural program at the University of Missouri, says seed prices have been rising about 5% per year, while yields are increasing about 1½ to 2%.

However, it's difficult to compare price increases on a straight-line basis, Massey says, because of the differences of today's seed. “Five years ago there was no Roundup Ready corn, and no multi-stacked traits,” he says. “So the value of the seed has increased because of the complex variations you can purchase.”

Emerson Nafziger, extension economist at the University of Illinois, says that the seed companies will ensure that their best products perform. “Companies have invested a significant amount of money in their products, but they've also invested time and money to gain the confidence of their customer,” he says. “The seed companies want to ensure you are getting the absolute best.”

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