Climate Change In Seed Sales

Every year at this time, CropLife® tries to assess what compelling issues the seed industry and retailers are facing. Heading into 2016, the list isn’t small.

Based on early returns from our CropLife 100 survey, some of the largest retailers in the country are reporting declines in seed sales. Editors also watched in 2014-2015 season as some growers waited a very long time to make their seed decisions — even as late as early March, instead of November. And we’ve noticed an interesting movement where some producers are returning to conventional seed, away from biotech products.

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Competition And Margins

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Dealers we spoke with admitted their seed business is more challenging than ever, though not as dire as some reports may suggest. A weak farm economy was named as the major culprit in many instances. “A lot of farmers are going to be looking for ways to save any penny they can because of depressed commodity prices,” says Kevin Mainord, location manager, Sanders (formerly MRM Ag Service), East Prairie, MO.

Mike Malone, president and CEO of Agri-AFC, Decatur, AL, believes growers shop around a lot more these days, and “price is the name of the game to these guys.” In fact, in some parts of his company’s territory, the number of competing retailers can range from two or three on up to seven to nine, heading into Georgia.

There are simply “too many players,” says Wes Roll, COO of West Central Ag Services, Ulen, MN.

Ron Farrell, president of Farrell Growth Group LLC and 50-plus year veteran of retailing, sees two rising sources of competition. One he calls a reorientation of the farmer dealer. As some have gotten older or opted out of the seed business over the last 10 to 15 years, other individual entrepreneurs have seen an opportunity. “They’re saying, ‘My local coop or independent does a great job on agronomic advice with the exception of seed. I’m going to go to Monsanto and Asgrow and Mycogen and Syngenta and see if I can represent their products and open up a business.’”

These new entrepreneurs focus on being technical professionals, both in genetics and in the traits available in seed, says Farrell. Their numbers are not large at this point, but the growth is there.

Seed bags in warehouse

Regional seed companies have expanded in recent years.

Another competitive factor is the expansion of strong regional seed companies. Though also few in number, they are expanding geographically rather rapidly, Farrell notes. One example is Beck’s Hybrids, which when it began in 1937 limited its sales territory to central Indiana. The company now is represented in “pretty much all the Corn Belt.” Limagrain Seed, also U.S.-based in Indiana, has moved dramatically into the western Corn Belt. And Wyffels Hybrids built a brand name around Davenport, IA, but the firm has grown extensively with strong genetics to neighboring states.

“The regionals give farmers an option,” Farrell points out. They understand local agronomic conditions. They have strong technologies of their own as well as relationships with Monsanto, Pioneer, Dow, etc. that give them access to traits.

Even more attractive to some growers, these companies’ personal brands can oftentimes cost significantly less than brand names such as Pioneer and Monsanto.

Besides increased competition, thin margins on seed continue to make the business tougher. “A lot of times it’s gotten to the point where seed is kind of a loss leader to pick up fertilizer and crop protection products after the fact,” says Agri-AFC’s Malone.

Farrell believes some of the lower margins retailers are seeing these days cannot support the development of a “true seed organization” and top quality seed people. Instead, many dealers have shifted investments toward seed treatments, which would normally be classified as ag chemicals.

“There’s been a shift, and not necessarily a good shift, because seed is a very, very critical component of an ag retailer’s business,” says Farrell. “It’s the very first decision that’s made in any agronomic system.” It influences fertilizer, herbicide and insecticide programs.

Chris Klumpp, technical agronomist with Ag Partners LLC, Hartley, IA agrees that “if we want to be successful in the seed business, we will need to invest more time in training our people to be better seedsmen. When you look at it from a per acre income point of view, it’s worth the investment.”

He is one dealer who has noticed a decline in seed sales and attributes it to the high turnover rate of sales people in ag.

To truly support a dedicated seed organization, Farrell calculates that retail margins need to reach 20+ %. “There needs to be some revision by most of the major seed companies selling to retailers to give them the opportunity to participate in a bit higher margin,” he says.

A look at publicly available financial statements for Agri­um/CPS show the company makes 20+% in their seed business. “This means there are seed sales/marketing models currently that demonstrate the value of improved retailer profit opportunities which offer more retailer participation in seed sales and consequently, more sales of the suppliers’ brand to growers,” Farrell says.

Late To The Party

Another emerging trend making the seed space more difficult is growers’ recent delays in making purchases. Agri-AFC’s Malone says his company books a lot of seed in November, but some growers’ decisions are indeed getting later and later each year, based on many variables. The weather was a factor in 2015, and his region missed a lot of corn planting because fields were so wet — and stayed too wet. Some of those acres went to peanuts, others to a little more cotton.

Pioneer Corn Seed in warehouse

Corn seed sits in a warehouse waiting to be shipped.

He admits it can be a scramble to make sure he has the right varieties in place when growers do get ready to plant.

Sanders’ Mainord agrees that weather, as well as crop prices and prices paid at the elevators can trigger last-minute changes in seed orders. He says it’s always a challenge to get farmers to plan in advance. Sanders’ buyers use history to help dictate what products the company keeps on hand.

West Central Ag’s Roll says the reason for purchasing delays lately is simple: Growers are waiting to decide what to grow based on profitability.

“The impact is serious, as it’s impossible to plan what inventory to have where. In addition, suppliers can have deadlines for tieing up seed orders, otherwise return penalties can be charged,” he points out.

In the Dakotas, growers have historically waited until the last minute to make cropping decisions — much more so than in the eastern Corn Belt, says Steve Briggs, senior vice president of agronomy and corporate marketing at South Dakota Wheat Growers (SDWG), Aberdeen, SD. That approach can be seen in other input purchases, including fertilizer. “None of the ‘experts’ are saying prices are going to go way up or way down,” he says. “There’s really very little risk at the farmer level if he’s listening to — and obeying — the experts, there’s no reason to put money down and lock into a price if the price is going to be similar next spring.”

Briggs notes that SDWG’s seed suppliers recognize the “Dakota cycle” and do a good job of making sure the company has the hybrids and varieties it needs.

In his region, Ag Partners’ Klumpp has only seen a small number of growers delaying a seed decision drastically. But the practice does make it more difficult for those farmers to get the best genetics, and it makes it difficult for his company to lock in the best price from suppliers.

Tommy Jumper, vice president of seed procurement with Pinnacle Agriculture Holdings, Memphis, TN, has another take on the buying decision timeline. For years, seed sellers — including seed companies and retailers — have been pushing the emphasis on seed purchasing much earlier. “We start talking about seed in August and September, whereas the primary seed-selling months used to be halfway through harvest into November. We have our seed decisions made before Christmas,” he says.

Jumper agrees that growers are really looking at their financial health in 2015 and at opportunities for next year. The issue gets even more complicated in much of the South where producers can have a five crop rotation of corn, soybeans, wheat, rice or cotton.

Farrell says growers may be waiting until March or April to make decisions in the hopes that seed prices will go down at such a late date. They just might be right, if seed companies are stuck with inventories of high quality hybrids that didn’t sell earlier. He feels this is a bad approach, but “that’s part of what people are looking for as an option to reduce cost.”

Farrell says the timing of seed purchases will continue to evolve. He foresees a scenario where “a farmer comes into a retailer during the off season and says, ‘I have to have fertilizer, seed and chemicals, and you are my supplier. I’m going to buy 80% of everything I need from you, and so let’s sit down and determine the best time for me to buy to ensure supply and the optimum price.’ They will put together this kind of interactive partnership. That’s where I see the agriculture market going longer term as the economic change we are going through right now begins to shake out,” says Farrell.

Return Of Traditional Seed

When asked about some growers’ move to traditional seed, away from GMO varieties, retailers’ reactions were mixed. Klumpp at Ag Partners has seen a small number of growers return to non-traited seed as a way to reduce costs. So far the switch has only had a small effect on the company’s business. This retailer’s approach: Continue to offer a full line of products from conventional to the newest biotech traited seed available, and help the growers purchasing conventional seed manage pests in other ways, through an IPM system.

Pioneer Corn seed bags

Some growers have returned to using traditional seed as a way to cut costs.

Across the territory Sanders’ Missouri location covers, non-GMO crops are not unique and in fact, are in demand because elevators there offer premiums for them.

Mainord estimates that growers can reduce their seed costs by two-thirds if they buy non-GMO, plus they believe they still get adequate yields, at a premium to boot. Then too, they can save seed from year to year for planting.

Farrell agrees that a return to conventional seed is being driven by just the pure economics of the marketplace right now. Growers are trying to reduce their seed cost by $20 to $50 per acre.

“Seed costs have gone up by an average of about 4% per year for the last 15 years, with no diminishment, across the board,” Farrell says. Growers see the huge fluctuations in fertilizer and chemical prices each year and wonder why there aren’t similar moderations in seed.

But if the goal of the shift is to save money on seed any trend in this direction may be short-lived. Chism Craig, vice president of research and development with Pinnacle Agriculture Holdings, Memphis, TN, says some growers may go the conventional route, but if the traditional market share needle begins to shift slightly, then the industry may react with additional discounting on some of the other technologies out there. “We’ll see if that sways some of these growers back towards the higher technology seeds,” he says.

Farrell questions the wisdom of a return to traditional seed products. For instance, growers still need to control weeds and will have to return to mechanical methods tillage and cultivation — which calls for multiple trips over the field. He also believes that various insects’ genomes have modified due to exposure to the insecticide technologies used in biotech seed, and they may be more difficult to control by conventional means.

Doing Seed Well

To be successful in seed these days, dealers need to be a source of expertise and information. For instance, SDWG has seen no decline in its seed sales, thanks in part to it strong agronomy programs, says Briggs. The company staffs 52 sales agronomists and conducts its own field trials.

Agri-AFC’s Malone would say that to combat competition, his company needs to be the one out there that offers the right amount of information and the right varieties.

One thing that sets Agri-AFC apart has been its seed trials. “We’re the only retailer that puts out the number of seed trials we do each year, throughout our territory. We have field days at each and every location with local producers. The ones that are really looking at changing what they’re doing on their farm are always there — they live for information,” says Malone.

Agri-AFC has created a system where seed trial results are “pushed through” into the company’s precision ag system. “It’s a one-two punch for growers,” he says. “They can get the best information on varieties, in particular, based on soil type.” Then, for customers doing variable-rate (VR) seeding, Agri-AFC can shoot the seed prescription directly to their planters. While just a handful of growers have invested in VR planters so far, Malone believes a lot more will get into the technology once commodity prices  turn around.

Seed prescriptions are not a huge money-maker for his company, but on the other hand, they’re a service Agri-AFC offers that some of its competition does not.

This kind of precision ag component will continue to grow in importance, says Farrell, a long-time advocate of the technologies. “The more successful farmers keep focusing on collecting data, more than they can use in many respects, then working with that key trusted advisor to determine what that data means, how it applies to varietal selection, plant population, fertility, weed control, seed treatments, all those kinds of things,” he describes. “That’s where the differentiation is going to be.”

Retailers can bring their broader base of experience in a geography to the table to look at each grower’s operations, defining which hybrids, fertility levels and herbicides will work to increase his net return per dollar invested, says Farrell. “If farmers and retailers begin concentrating discussion on return on investment per acre or bushel, price objection generally goes away, and they get down to the point of a partnership. That’s ultimately where ag retail is going to go, or the farmer is going to say: ‘Why in the world do I need you?’”

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