Higher commodity prices this year likely will translate into higher seed costs next year, based on research conducted by the University of Illinois and Ohio State University.
Analysis of prices found a correlation between commercial crop prices and seed costs the subsequent year, which likely comes as no surprise to farmers.
“Looking at seed costs and how they change over time, all farmers know they’ve been increasing,” said Gary Schnitkey, U of I professor of farm management and Soybean Industry Chair in Agricultural Strategy. “We tend to see the largest increases for seed costs when commodity prices are high.”
From 1975 to 2005, seed costs increased steadily, with an average per acre increase of $1.13 per year in the U.S.
Seed prices then jumped from averages of $44 per acre in 2006 to $102 per acre in 2015 during the ethanol boom, which equates to a yearly increase of $6.50 per acre during that time, according to the research.
Seed costs actually declined slightly to $92 per acre by 2020 near the end of a long run of stagnant commodity prices. But, with historically high corn and soybean prices this year, Schnitkey expects some upward adjustments for 2022.
“Given where corn and soybean prices are now, we’d be expecting seed costs to increase,” he said. “Overall, given history, we expect a $5 to $10 per acre increase in average seed costs. Some farmers will have much more than that, especially those seeking out the latest technology.”
And that likely will diminish the bottom line for farmers as higher seed costs are projected to take a larger chunk out of expected returns. Seed costs currently account for about 12% of expected revenues compared to around 7% in 2000 and closer to 4% back in 1975.
“Over time, seed costs have taken up more of share of gross revenue,” Schnitkey said. “That’s likely due to increasing genetic potential and traits in corn and soybeans.”
But it remains to be seen if farmers can grow enough extra bushels next year to compensate for higher input costs. The cost of anhydrous ammonia shot up from around $400 per ton to more than $700 per ton in the past year and prices of other items such as diesel fuel, propone and land costs, also jumped higher this year.
“Overall, I think 2021 will be a good income year,” Schnitkey said.
“But, we’ll likely be coming back to tighter times in the future. So, use this time to strengthen balance sheets and get working capital and debt in good order.”
Schnitkey believes crop prices could return to the $4-range for corn and $9-range for soybeans as early as next year or 2023 as production could expand in the U.S., South America and other areas of the world.