The costs of corn seeds have increased over time.
Genetic improvements and the use of biotechnology in hybrids have led to higher yields, contributing to the general increase in seed prices and seed costs per acre. Seed costs are also positively associated with the increase in expected income from maize production. As a result, seed costs per acre in the United States will likely increase in 2022.
Seed costs per acre
Farms in central Illinois have higher seed costs per acre, possibly due to a higher yield potential in central Illinois compared to the United States. For example, trend yield represents a forecast of yields before growth. In 2020, the expected yield from FBFM farms in central Illinois was 220 bushels per acre, compared to 174 bushels per acre for the United States.
Three periods of seed costs are evident. From 1975 to 2005, seed costs per acre increased steadily, with an average increase per acre in the United States of $ 1.13 per year.
During the second period from 2006 to 2013, corn prices increased due to the increasing use of corn in the production of ethanol. As a result, expected corn revenues have reached higher levels and seed costs per acre have increased. In the United States, seed costs have increased from $ 44 per acre in 2006 to $ 102 per acre in 2015, an average annual increase of $ 6.50 per acre.
The third period was a period of declining commodity prices, corresponding to a steady growth in the use of corn in ethanol. During the period 2015 to 2020, seed costs decreased slightly from $ 102 in 2015 to $ 92 in 2020.
Maize prices increased at the end of 2020 and persisted until 2021. Historical relationships suggest that these higher maize prices could cause seed costs to increase in 2022.
Historical relationships explaining seed costs per acre
A statistical evaluation was conducted to determine the factors affecting seed costs per acre in the United States. US data was used rather than central Illinois data because a longer time series exists for US data. Two factors explain more than 90% of the variability in seed costs per acre.
Expected gross turnover: Increases in expected gross revenues have generally resulted in increased seed costs per acre. For this analysis, the expected gross income is equal to the trend yield multiplied by the price of maize from the previous year. Prices depend on the weather and last year’s result is a good projector for next year’s price.
The expected gross income from corn was very statistically significant. Overall, the regression results suggest that a $ 100 increase in gross revenues results in a $ 7 increase in seed costs; however, increase (decrease) enters the relationship over time. The expected income difference between 2021 and 2022 would likely result in an increase of $ 6 to $ 7 in seed costs.
A number of economic reasons can be invoked to justify the increase in seed costs in years when the expected gross income is higher. A higher expected gross income usually means that corn will be more profitable, which could lead to increased acres of corn and increased demand for seeds.
Higher demand usually translates into higher prices, especially with a relatively fixed seed supply in any given year. In addition, there is competition between hybrids; in general, hybrids with higher expected yields have higher seed prices. While a hybrid has a yield advantage over other hybrids, that yield advantage will be valued higher in higher price years. As a result, farmers are likely willing to pay more for this yield advantage in years when the expected prices are higher. These factors also work in the opposite direction.
Time: Over time, seed costs have increased relative to the expected gross income. During the period 1975 to 2020, seed costs per acre increased by an average of $ 2.70 per year.
Several reasons can be given to explain the increase in seed costs over time. The hybrids continuously increased their yield, leading to a higher seed value. Additionally, the biotech traits of corn hybrids have led to management benefits over time, which could lead to reductions in pesticides and tillage costs. Over time, hybrids have specialized in a geographic area and soil type. For all these reasons, seeds and genetic improvements in seeds have become more valuable over time.
In addition, the genetics of seeds and crops have become increasingly concentrated. Over time, many seed companies have consolidated and merged. Today, three companies – Bayer, Corteva and Syngenta – have a significant share of biotech traits and are investing heavily in crop genetics. The role of competition in the price of seeds is not well understood. However, consolidation trends are reducing the number of firms competing for a share of farmers’ purchases.