There is reason for every action that is taken. For those in business, any step that will increase the profit margin is a welcome idea any time and any day. It is interesting to note that most of these companies budget huge amounts annually to find ways of making more profits, and at the same time cut down on the cost of production.
The current situation in the seed industry gives cause for serious concern. According to Joe Lauer, a corn agronomist in his paper titled Agronomy advice of December 1995 published in the University of Wisconsin Agronomy department bulletin, poultry, swine, and cattle require feed with high calorie levels.
In that research paper, he went on to confirm that high-oil corn became attractive because it has greater energy than normal corn. There is therefore the rush for high yield seed/corn that contains a heavy amount of oil. That is the beginning of the troubles that are threatening the survival of the players in the market. He established the fact that oil contains 2.25 times as many calories as carbohydrates.
As far back as 1896 at the University of Illinois, the first high-oil corn yield was developed. A lot of research has since taken place which has led to improvements, and in the mid 1950’s hybrids derived from Illinois high oil projects yielded about 10% lower when compared with the best commercial hybrids. So, in terms of yield, there is a shortfall in production.
The demand for poultry products is increasing with every passing day. With the increase in world population, it becomes obvious that there will be more demand for beef, and related poultry products are on the rise. Cattle depend on the feed for survival on one hand and on the other to increase the population to meet up with the demand.
The focus now is on using Top Cross R system. This will guarantee the production of greater yields than previously developed hybrids. There is a lot of activity going on in the sector. What producers are after is the short-term gains on their investments. Are they thinking about the long-term effects? That is the real problem that they have to contend with today. But before l go into that area, let us take a look at the piece of advice that Joe Lauer has for would be investors in high-oil corn that contains a heavy amount of oil.
PRODUCERS SHOULD NOTE
The grain yield is expected to decrease with high-oil corn yields. The decrease will be as high as 20% in some instances. You can imagine the effect of that on projections. This predicted shortfall is not in the overall interest of the investment.
The calorie yield at the end of the day is even marginal. With that confirmation, the investment in the sector is worth rethinking because the initial gains are no longer there in the long run.
The field must be planted in isolation from other corn fields to guarantee the expected yield of heavy amounts of oil.
It is strongly advised that a test run should be carried out on a few acres before full scale production is undertaken by any producer.
Above everything, and this is perhaps the main reason. Before you plant, be sure to explore your market to be very sure that you have a place to push your seeds after all the effort. Without sales, all other efforts will be fruitless. This is perhaps the greatest mistake of producers in the industry. They imagine a market that is not real in practical terms but only in their imaginations. Their products are ready, but the market is not there; hence a crises situation will set in. That is the major cause of the problem in the industry today. The reason many producers are biting their fingernails is because of wrong decisions on the market. When there is supply with no demand, the law of economics takes effect-predictable drop in prices of such commodities.
Let us take a look at the submissions of Joe Lauer presented in a tabular form.
|Comparison of “TopCross®” high-oil corn with its regular dent corn counterpart.|
|Hybrid||Trait||Grain yield||Grain moisture||Test weight||Oil content|
These are definitely not the best of times in the seed/corn high yield sector. In any business endeavor, the determining factor is price. There are two ways to it; the first is when all players in the industry are happy. The farmer is happy that he gets his return on investments. The companies that trade in it are also happy because they are making their own gains. That is the ideal situation.
But what we have on the ground due to production of seed/corn with high amounts of oil is something to worry about. The excess grain around has produced losers as well as gainers in the industry. We shall come to address that by citing examples in the closing section of this article. But before going into that concluding part, let us address the problem at hand by way of making possible suggestions to it so that everybody in the industry will be happy once again; in doing this, we shall be looking at a section of the report presented by Agropoly-Econex Joe Lauer us-BerneDeclaration.
WHAT HAS TO CHANGE
Countries are advised to introduce more effective measures to prevent oligopolies. It is observed that consumer associations in many countries are weak. Measures should be taken to empower such consumer associations. In most countries, they do not have the right to go to court when they have a genuine case. There should be a measure of checks and balances to protect their interests in the business. Further, contracts in contract farming will not produce a healthy environment and should be outlawed completely. The abuse of market powers against suppliers should be thoroughly investigated, and culprits should be brought to book.
The public subsidies should be transparent in their actions. They should do everything legal to ensure a fair deal for all in the sector. The present situation whereby subsidies benefit large companies will deal a death blow to the seed/grain high-oil yield sector if not checked in time. There should be fair treatment for all, a level ground whereby everybody will be happy in the business. Switzerland is a country that has gotten it right in this regard. The country has the right agricultural policies backed up by the right ecological direct payment.
When there is excess high-oil seed/grain, there are losers and there are gainers. We shall be going into all these to let us know the reality on ground. The thoughts below on the gainers and losers are those of an expert-Shamus Funk, a freelance writer for the Motley Fool, in his observations written on March 8, 2014, which is still very relevant to events in 2017.
LOSERS AND THE GAINERS
The United States department of Agriculture (USDA) has predicted a fall in the price of high-oil seed/grain. The drop in the price of soya beans is as high as 20%. This reality on the ground has produced winners as well as losers. The painful aspect of this situation is the fact that the farmers are not favored in the emerging trend in the market today. The cultivation of high-oil seed/grain has turned into a loss rather than gain due to the fall in the prices of their crops.
The gains, as things stand now, are being exploited by industries who operate on high-oil seeds/grains as ingredients. They pay less than expected for these ingredients, yet the marginal gain on their final product is in no way reduced. We are referring to companies such as PepsiCo and Kraft Foods which manufacture large amounts of corn- and soy-based products.
Another sector that is reaping the benefits are the meat, food, and milk producers. The longer the prices are kept down, the better for these categories of industries in terms of their profit margin. Tyson Foods and milk producers like Dean Foods are the clear gainers in this category. They cut operational costs without any cut in the margin of profits they make.
The list of categories of gainers will not be complete if we fail to include those in the distillery sector of the economy. The ethanol producers are also making their gains in this market condition that favors them. One very glaring example is Archer Daniels Midland Company whose major raw material is highly dependent seed/grain. The fall in prices of the commodity is now of high commercial benefit to them.
We also have those that are losers. The law of supply and demand readily comes into action here. When the growers of high-oil seeds find out that the expected gains have dropped, they will be discouraged. Naturally, the zeal to plant more will be killed. The likelihood is very high that they will look for means of storing their grains rather than selling them. The wise thing for them here is to wait for a time when prices will go up, by which time they will be able to make their gains. Farmers will choose to plant less.
Companies that service these farmers will lose out in this situation. That is the picture in the industry today. The big-time companies are buying out smaller companies. The sole aim is to control the market and by extension dictate the price of the seeds. The rush by the agro-based companies to go into the planting of high-oil yield grains is not marched by the availability of the market. This is where everybody got it wrong. There is mass harvest without thinking of where to push produce. At the end of the day, the excess oil produced has no willing market.
When supply is more than demand in any distribution chain, prices are bound to fall. The fall in prices this time around has gone down to as ridiculously low as 50%. It has never been this bad in the history of the grain market. The fall in the prices of crude oil is not helping matters. When prices of crude fall, there will always be a corresponding decline in the prices of grains. Americans has been shaken by this trend in the market. Agriculturally-based firms such as Monsanto mon and Deere & Co. de have seen their stock prices drop because of the drop in prices of the grains.
It is very clear that a financial crisis is hitting the farm belt. This sector has been one of the few bright spots in the economies of most countries, but with the current situations, most of these countries, including the United States, have been shaken. Where have they gotten it wrong in the grain market? Reflecting on the analysis so far, it is very clear that the pursuit of high yield grains without consideration for other factors that will make it successful is the chief cause of the problem on our hands.
The demand is an important factor in the chain of distribution. When grains are produced without consideration for the end users, there will be excess. When there is excess, there will be apathy on the part of the buyers. That is exactly the situation today in the grain market the world over. Another factor that may persuade investors to go into high-yield grains is when there is a crisis in major producing countries. It happened in Ukraine in 2014, which led to an increase in the prices of grains. But what happens to such prices when the crisis is over? Will such prices remain high?
The above factors contributed mainly in luring investors into going for high-yield grains. Now the prices have gone to an all-time low. The farmers are not happy. They are no longer encouraged to plant the acres of land available to them. They withhold the grains in their possession because of the drastic drop in prices and, by implication, the gain they are expected to make. Companies involved in financing the farmers are not having it pretty. For now, it is bad business.
The gainers are those whose raw materials are the grains. They buy at low prices, yet the prices of their final product remain stable. They are the big gainers for now. It is not fair to those who are the primary players in the industry.
Now to the big question: Is making seed/corn that contains a high amount of oil a blessing or curse? Is everybody happy with the situation in the grain market today? I agree with your answer. There is indeed a controversy today over the merits/demerits of making seed/corn that contains a high amount of oil.
Image from flickr by Arran Bee