Seed Decisions: Balancing Price And Performance

Thunder Seed Grower and dealer

Consolidation, new systems and traits, the ag economy, pricing, yield expectations, GMO concerns — all may impact growers’ decisions on seed purchases.

Even a cursory glance at headlines covering the seed industry these days could move a reader to an “OMG!” moment. Consolidation, new systems and traits, the ag economy, pricing, yield expectations, GMO concerns — all may impact growers’ decisions on seed purchases. CropLife magazine looks at how some of these trends are playing out on the ground.

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One challenge in particular seemed to concern a number of dealers contacted: the sheer number of places growers can buy seed. Gene Skoglund, Agronomy Operations Manager at North Central Farmers Elevator (NCFE), Ipswitch, SD, says the market in his area is saturated, with competing retailers selling the same brands to an ever-shrinking number of farmers. “How do you grow your market when that happens,” he questions.

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A recent situation at one CropLife 100 company highlights the intensity of the competition to get growers’ seed dollars.

AFS Seed, the seed end of Asmus Farm Supply, Rake, IA, was asked by Monsanto to become exclusive to the Channel brand, explains Bil Schrader, Seed Department Manager. After careful consideration, AFS decided to decline Monsanto’s request. AFS now carries AgriGold (AgReliant), Prairie Brand (Dow AgroSciences), NuTech (DuPont), and Credenz (Bayer).

“Our goal, especially in this market environment and the way things are developing, is to have options for our customers, whether it’s seed, crop protection or fertilizer,” says Schrader. “Being exclusive to Channel really limited the offerings we could bring to the table. That was the main reason for walking away from the relationship.”

He believes “without a doubt” that other ag retailers will feel the same pressure to go exclusive from suppliers — but understands the reasoning. It’s going to be a tough year, he says, noting that the continued mergers in the seed/crop protection industry are evidence of that. Seed companies are feeling pressure on margins, and they feel the need to take action to consolidate and control costs.

None of the seed companies have access to all the traits or genetics, points out Larry Mueller, Executive Sales Director with Thunder Seed, Dilworth, MN. “If a dealership takes that exclusive approach, they will always leave themselves vulnerable to the part of the market they’re not able to service,” he says.

Growers plant more than one brand, says Damon Palmer, General Manager, Mycogen Seeds. His company works with retail to help sell those multiple brands. To do this, the firm uses team selling, the dealer’s local knowledge and relationships, and the product expertise of the Mycogen staff. The goal is to provide more solutions, not fewer.

Seed Company Shifts

Questions about choices, pricing and innovation are at the heart of recent concerns CropLife editors have heard from retailers about the $66 billion Bayer/Monsanto merger.

Officials from both companies were called to defend the deal in Congressional hearings in September, following its announcement earlier that month. The Bayer buy would mean that three companies would soon own more than 80% of U.S. corn seed sales and 70% of the global pesticide market, according to the National Farmers Union — Dow Chemical and DuPont announced a merger last December (and are confident it will be approved by the end of 2016); ChemChina also hopes to close its purchase of Syngenta before the end of the year. U.S. regulators are looking into these two transactions. European officials, acting under notoriously stricter trust and enterprise laws, will need to weigh in on Bayer’s purchase of Monsanto as well.

John Christian, President of CropLife 100 retailer Green Valley Agricultural, Wayland, WI, expressed his reservations about the Bayer/Monsanto merger. The first was losing a great American company to foreign ownership.

He’s also found that Monsanto is a great company to work with — and while he doesn’t disparage Bayer, he hasn’t seen that it possesses the same energy. “They don’t have the same desire to stand behind the performance of their products,” says Christian.

As for the impact of such a consolidation of expertise and capital, Christian says it is difficult for him to envision the move bringing value to the American farmer. While he believes Europe’s Bayer may arguably own the worlds’ greatest genetically-modified organism (GMO) trait technology and could encourage more acceptance of GMOs, “it remains to be seen if that leads to more market opportunities for American farmers and improved margins on their production.

“Many American retailers have made huge investments to bring Monsanto genetics and traits to the American farmer,” he says. The question of whether the new owners will want to continue to build and support these brands certainly adds new risk to the investments made by American retailers.”

AFS Seeds’ Schrader also has some concerns about the Bayer/Monsanto deal but ultimately could see portions of the new mega-company spinning off — to create even more opportunities than are available today.

Yet other dealers are simply resigned to the purchase, citing the fact that companies are constantly merging, getting bigger. “It’s the way the world works these days,” notes NCFE’s Skoglund.

Amidst this flurry of activity among the major seed companies, regional seed suppliers are still commanding about 20% of market share. In fact, Skoglund thinks these companies have been growing because they’ve been willing to sell product a little cheaper in the tight economic environment.

Chuck Lee, Head of Seed Product Marketing at Syngenta, would agree that these companies have grown quite a bit in the last few years, especially in corn and soybean sales. “Many of them have sold a lot of LibertyLink soybeans, and they’ve gained quite a bit of market share — they’ve used that to grow corn as well,” he says. Lee adds that they can specialize, often providing a higher level of service than growers can sometimes get from national brands.

Thunder Seed’s Mueller agrees that regionals are in a unique position to deliver a high level of customer service. As farmers themselves at Thunder, he says his team has deep insight into what customers need in local soils and growing conditions.

In spite of all this competition, Pinnacle Agriculture is launching its own proprietary seed company, Mission Seed Solutions, LLC. The move comes, in part, because of Pinnacle’s huge investment in this space — nearly one-third of its business consists of seed sales.

Pinnacle obviously sees an opportunity. Andrew Duff, Vice President of Seed Strategy, says his company’s goal is to “differentiate the company as a full service national retail supplier that leads with seed.”

Pinnacle operates 168 locations across the U.S., and seed is vital to every one, he notes. The actual brands Mission Seed will offer will differ depending on geography. “We will work with genetic and trait suppliers to access what suits the agronomic needs of our customers.”

The company has been in the seed business for many years, custom producing and conditioning soybeans, rice and wheat for major national seed brands. So they already have plenty of internal expertise in seed.

To be based in Loveland, CO, Mission Seed Solutions was planning to introduce its first corn and soybean production into the market this fall.

Movement On Pricing

Besides evolving suppliers, seed prices have been a huge issue in the past several years. As crop prices have gone down, seed companies have not made corresponding decreases in their products.

As one retailer CropLife spoke with noted, “The problem here is some seed companies made statements as the price of grain was going up about how they just wanted to take their share of that yield benefit — in the seed price. A lot of growers remember that, and now the cost of grain has been going down, so in turn, the value of that seed should probably come down too, in their mind. It’s hard to argue that logic when some of the seed companies used that as their main case for why seed prices were rising as they did.”

AFS Seed Retailer and Grower

Pricing programs over the past two years reveal that seed companies are becoming more responsive to cost concerns.

Many growers do realize the value of the products, though. NCFE’s Skoglund sees that in this economic environment, while growers are certainly looking for the cheaper seed, they also understand its worth: they need good seed to get good yields and are willing to pay for it. Seed companies know this.

Thunder Seed’s Mueller highlights the difference between traits and genetics. He notes that when they were first released, there was more value in having the traits than necessarily having the best genetics. As other companies came out with traits in their products, the value of the traits was reduced and became “expected” more than “enhanced.”

“Traits can only be a leader in setting prices when they are unique or have an extremely high value to a specific area,” he believes. For example, new chemical-resistant varieties that can help where weeds are resistant to glyphosate will be very valuable on the market when they are first released. Once there is an ample supply or other trait options that yield as well become available, the value in the traits will once again drop and the value of the genetics will once again go up.

Pricing programs over the past two years reveal that seed companies are becoming more responsive to cost concerns.

Mycogen Seeds has announced it would be using a data-driven approach to pricing seed based on the value to growers in different growing regions. Customers will pay for the relative value they can expect from an individual hybrid in a specific geography, and Mycogen Seeds representatives and dealers are helping growers examine their operations field by field to bring the right genetics for maximum ROI to each, explains the company’s Palmer.

For 2017, Monsanto will be offering a mix of products across its portfolio which will allow farmers to select the right items to meet their agronomic and economic needs, says Jeff Neu, Product Communications Lead. “Most existing products’ pricing will be flat to down. We do have several new 2017 offerings that will be priced according to the value they deliver our farmer customer. Ultimately, pricing will vary depending on the product mix and seed a farmer chooses,” he explains.

Tara Hendricks, Seed Department Manager with Pearl City Elevator, Pearl City, IL, has noticed that DeKalb is taking a more value conscious approach, especially this year.

“All the new and leading genetics they have as a SmartStax hybrid are also available in a VT2P (double pro) option. These VT2P hybrids can be positioned on rotated acres and used as a way to place elite genetics on a farm and still keep the price manageable,” she says. “DeKalb is also keeping proven hybrids in its rotation longer and lowering the price point on those hybrids for the same reasons.”

Another cost incentive: Neu says Monsanto offers customer-friendly payment, financing and early cash discounts on a broad range of “product solutions” and price points. For example, Monsanto now has a 0% financing program with simple payment options and post-harvest terms. Financing is available for both seed and Monsanto chemistry products. “We also have attractive deadlines to apply for financing with a simple application process,” he says.

Other seed companies such as Syngenta are also offering financing choices. “We’re able to stack that on top of some cash discount work. Additionally, we did reduce the price of our soybean line-up, across the board in an effort to help moderate prices,” says Lee.

He adds that one more-affordable option, available from Syngenta, is its block refuge products in corn. In fact, the block refuge seed packages, priced $20 to $40 less than refuge-in-a-bag products, have been “pretty successful.”

Growers’ Approaches

AFS’s Schrader thinks that as markets are evolving, growers are re-evaluating traits — their importance and what value should be associated with them. He sees customers shifting to products with fewer traits in corn hybrids to manage their expenses. “I think that’s going to make the supply of those products tight,” he says. “If people want to do that, they need to commit early to have those lined up.”

Growers are probably not going to be buying the newer hybrids because they’re priced out of the market, says NCFE’s Skoglund. They’ll fall back and rely on the “old reliable numbers” that they’ve used that are of more value to them — the ones they understand and know they can get the yields out of.

In mid-October, it was still early in many regions for growers to be making 2017 buying decisions based on seed performance this year. But Syngenta’s Lee described a scenario where a grower was picking one particular Golden Harvest corn hybrid and getting outstanding yields. “He got off the combine and ordered 200 bags on the spot,” said Lee. “Guys that grow the highest yield in their lives … that does tend to motivate them when it comes to seed selection.”

The newest herbicide resistance traits continue to get plenty of attention across the industry. At premium prices, will growers go for them? Yep. The LibertyLink system has seen strong sales at many outlets. And NCFE’s Skoglund estimates 70% to 80% of his customers are interested in the Xtend system, particularly those battling glyphosate-resistant kochia and waterhemp. But if varieties are too pricey, farmers will probably look elsewhere, especially those who have their weeds under control.

Retailers have been closely watching Xtend field trial results. They’ve been very encouraged, saying there’s no sign of a yield drag, even though these are the first generation of varieties to contain the new trait.

No matter growers’ plans this year, “I think every time there’s a conversation with a seed salesman, anyone selling inputs to growers, economics are going to be a focal point of the discussion,” AFS’s Schrader says. “There will be challenges with each sale that’s made. It’s going to be some give and take. It won’t just be on my level either. It will be on the seed companies’ level.”

In fact, one customer Schrader visited with in October said he felt sorry for seed salesmen. The grower was trying to reign in his costs and negotiate some more palatable seed prices.

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