by David A. Widmar
In a post from a year ago we took a look at how budgeted corn seed expenses had changed over time. That post shed light on an interesting trend in corn seed expense and left us wondering how seed expenses would adjust in 2015. Mainly, we wondering if the record corn seed expense observed in 2014 would adjust lower with forecasted incomes for 2015.
In this week’s post are revisiting seed expense and take a look at corn and soybean seed expenses.
The USDA’s Economic Research Service (ERS) provides cost of production estimates for corn and soybeans back to 1975. These data include national-level estimates for seed expenses. The estimated corn seed expense, adjusted for inflation (or in “real” terms) is shown in Figure 1 in orange (left axis). From 1975 to approximately 2002, the average seed expense for producers across the United States was around $40 per acre when adjusted for inflation (2014=100). Since 2002 seed expense has increased rapidly. From 2006 to 2014 alone, the seed expense nearly doubled in real dollars; increasing from $51 per acre in 2006 to $101 per acre in 2014 (in nominal dollars, the increase was from $44 to $101).
Another way of measuring how seed expense has changed over time is to consider what share of total expense seed accounted for. This is also shown in blue (right axis) on Figure 1. From 1985 to about 2001, seed accounted for between 7 and 8 percent of total expense. In recent years, this share has increased rapidly and in 2014 accounted for 12.6% of total expenses.
Figure 1. US Corn Seed Expense from 1975-2014. Real Corn Seed Expense (2014 = 100) in Orange (left axis) and Corn Seed Expense as a Share of Total Expense in Blue (rights axis). Data Source: USDA ERS.
The same data are presented for soybeans in Figure 2. Similar to corn seed, soybean seed expense in real dollars and as a percent of total expense increased since the early 2000s. However, soybean seed expense peaked in 2010 at 16.3% of total expense. The nationally reported nominal expense fell from $59.12 per acre in 2010 to $55.55 in 2011 (not shown). This was a 6.2% decrease in just one year. Furthermore, when adjusting for inflation soybean seed expense has yet to return to 2010 levels. In 2014, soybean seed accounted for 12.6% of total expenses.
Figure 2. US Soybean Seed Expense from 1975-2014. Real Soybean Seed Expense (2014 = 100) in Orange (left axis) and Soybean Seed Expense as a Share of Total Expense in Blue (rights axis). Data Source: USDA ERS.
To take another look at the trends in corn seed expense, Purdue University crop budgets were considered from 2002 to 2015 for average quality farmland in Indiana. The budgeted seed expense per acre is shown in gray in Figure 3 (left axis). Prior to 2007, seed expense was budgeted at less than $40 per acre. In 2008 a substantial jump in the budgeted expense occurred. This was followed by a strong increase year over year. From 2002 to 2015, the budgeted corn seed expense increased 11.5% annually.
Shown in green (right axis) is the share of total expected revenue that seed expense represents. In general, seed expense represented nearly 10% of expected revenue from 2002 to 2008. In 2009 and 2010 this jumped to 14% before settling around 11% from 2011 – 2013. We wondered last year if budget corn seed expense would inch higher in 2015; turns out it did. In 2015, budgeted seed expense was $123 per acre and accounted for 19.1% of expected revenue.
Figure 3. Budgeted Corn Seed Expense for Average Quality Farmland in Indiana, 2002-2015. Dollars per acre (gray, left axis) and Share of Expected Revenue (green, right axis). Data Source: Purdue University Crop Budgets.
Soybean seed expense in Indiana is shown in Figure 4. Similar to corn, the budgeted expense per acre has increased over the time period. Since 2002, the expense has increased at 7.2% annually.
Soybean seed expense measured as a share of expected revenue (in green and on the right axis) decreased from a high point in 2005 through 2011. Since 2012 the share of expected revenue soybean seed accounts for has increased and in 2015 reached record levels of 15.7%.
Figure 4. Budgeted Soybean Seed Expense for Average Quality Farmland in Indiana, 2002-2015. Dollars per acre (gray, left axis) and Share of Expected Revenue (green, right axis). Data Source: Purdue University Crop Budgets.
Wrapping it up
At the national level, there is precedent for lower expense for soybeans seed (2010 into 2011). While soybean seed has accounted for a lower share of total expenses since 2010 (Figure 2) current levels are well above historic levels. For corn, seed expense has not substantially declined over the evaluated time period.
Even if budgeted seed expenses stay constant into 2016, current estimates for grain prices in 2016 will leave seed expenses in the Purdue budgets at or near record levels for 2016.
Similar to our conclusions last year, this environment seems ripe for a seed manufacture to cut prices as a strategy for gaining market share. This did not appear to happen last year and producers should not plan on lower seed prices as a plan for lowering their seed expense. Again in 2016 producers will have to consider the hybrids, seed treatments, and genetic stacks they select as well as their seeding rates.
In Indiana, corn and soybean seed expense accounts for nearly 19% and 16%, respectively, of total expected revenue in 2015 and it would not surprise us to similar or slightly higher levels in 2016.
 CME December 2016 corn prices at $4.28 less $0.25 for basis, per Purdue budget, at 165 bushel per acre yield would have $123 per acre corn seed expense at 18.5%; compared to 19.1% in 2015 and 15.7% in 2014. For soybeans, November 2016 soybean prices on the CME trading at $9.53 adjusted for basis less $0.35 at 50 bushel per acre yield would place soybean seed expense of $74/acre per acre at 16.1%; compared to 15.7% in 2015 and 11.9% in 2014.
Photo Source: Flickr/United Soybean Board