Here are some things to keep in mind:
1) Value of seed depends on commodity prices. To be more specific, the amount that a seed company can charge over a competitor is expected yield advantage times commodity price times a risk factor. The risk factor is some number much less than 1 that incorporates performance volatility and relative performance volatility. Wow, that’s a painfully dry read. I’ll give a simple example of what I mean. This year I had a good variety that performed 40 bu/acre better than a poor variety. When corn is $8/bu the advantage is $320/acre and when corn is $2/bu the advantage is $80/acre. So the amount of extra money I’m willing to pay for the better seed is directly proportional to commodity prices. When commodity prices drop, seed prices must drop. It really is that simple.
2) Farmers capture all risk premiums. Because seed prices usually are set once per year and don’t change (last week being exceptional), it is up to us as farmers to hedge our input costs or take the risk of commodity value changes that happen before we price our grain. That market risk factor is handled entirely by us and therefore we capture the entire risk premium. Like the performance volatility that reduces our willingness to pay for seed value, this also reduces the price that we pay. Seed companies could charge a lot more if they took on either of these risks in a way that allowed them to capture some of the upside.
3) Seed is not variable. The environment is variable. It can make a guy crazy trying to find patterns and choose seed based on yield trials. The lack of consistency really eats away at our confidence in the seed performance. But it really should be a reminder of how inconsistently we manage our ground. Varieties that are genetically identical will perform the same under identical circumstances. Genes are digital. But because we add to natural variability with seeding and other input applications that aren’t perfectly uniform, we bring inconsistency to the field.
4) Weather effects on relative seed performance trump soil variability. Every blip in the weather affects varieties differently, but under a given weather senario a variety that performs well on sandy soil will do well on heavy clay soils and everything in between. The idea that we need to be very thoughtful about variety placement is passé in the corn belt. But what we do need to do is look at every year of data available when evaluating seed. Each year is just an anecdote.
At the end of the day, seed is a great buy. Seed prices seem high, but they would be a lot higher if the seed companies were more aggressive in capturing the value they create. We used to be happy with 180 bu/acre and now it takes 280 bu/acre to get the same feeling. It isn’t because we’re that much better at our farming. Sure, we make little improvements, but the value is really created by the seed companies. They earned it. They deserve it. But they leave a lot for us!
