Profits soar in organic soybeans, corn: economist

Sean Pratt reports from the Oilseed & Grain Trade Summit in Minneapolis, Minn.

Organic corn and soybean production is far more profitable than conventional, according to a U.S. Department of Agriculture analysis.

The premiums organic farmers receive for growing those crops more than compensate for the higher cost of production, said Catherine Greene, senior agricultural economist with the USDA’s Economic Research Service.

Organic corn prices in the U.S. were $5 to $10 per bushel higher than conventional prices from 2011-14. The cost of production for organic corn was $1.92 to $2.27 per bushel higher during the same time.

It was a similar story for soybeans with prices averaging $10 to $15 per bu. higher, easily covering the $6.62 to $7.81 per bu. cost increase.

Greene’s conclusion is that there is “significant profit potential” in growing organic corn and soybeans versus conventional, she told delegates attending the Organic and Non-GMO Forum portion of the 2016 Oilseed & Grain Trade Summit.

Cost differences vary by expense category. An organic corn farmer pays more for capital, labour and fuel while a conventional farmer typically spends more on land, seed, fertilizer and chemicals.

It’s the same situation for the soybean comparison, except the organic seed costs are lower than conventional.

“Overall, the costs are typically a little higher in organic.”

She said herbicide resistance and the multiple traits required to combat that resistance are continually driving up chemical costs for conventional farmers using genetically modified seeds.

Greene said one cost organic producers face that their conventional counterparts do not is preventing contamination from GM crops. One study estimated the median cost at $6,500 to $8,500 per organic farm.

The biggest cost is the practice of delaying seeding to prevent contamination. Organic producers seed an average of one month later than conventional growers in Indiana and Missouri, three weeks later in Ohio and Iowa and two weeks later in the upper Midwest.

“It likely lowers yields because you’re not planting at the optimal time,” she said.

There is also the added cost of buffer strips.

The USDA asked organic farmers if they have documented proof of contamination and what it cost their operation.

“Overall, not that many farmers reported that they had economic losses from testing positive for GE,” said Greene.

The average loss for those that did was $70,009 but that number was skewed higher by cases in Texas involving high-value crops.

“That average was way higher than if you took Texas out,” she said.

Organic prices are much higher than conventional because of the double-digit annual growth in de-mand for organic products. Greene sees no end in that pace of growth over the next five years.

U.S. retail sales of organic food amounted to $40 billion in 2015, or five percent of total food sales. Fresh fruit and vegetables are the top sellers followed by dairy.

That overwhelming demand is why organic corn and soybean prices are double to triple conventional prices. Greene recalls they were three to four times conventional prices in the late 1990s.

“So they have come down a little bit but overall it’s still a market that has unmet demand,” she said.

By comparison, the price premium for growing non-GM food grade soybeans was eight to nine percent over conventional in 2015, while non-GM feed grade soybeans fetched a 12 to 14 percent premium. She suspects those premiums will fall in 2016.

explore

Stories from our other publications