By Emily Unglesbee
DTN Staff Reporter
ROCKVILLE, Md. (DTN) -- Seed prices, and the companies that set them, have appeared stubbornly indifferent to the decline in commodity crop values over the past few growing seasons.
This past indifference -- and farmers' growing frustration over it -- may have changed, with some seed companies now re-examining their portfolios and pricing strategies.
Most of the larger companies are officially staying the course in 2017, but at least one brand, Dow AgroSciences' Mycogen Seeds, is throwing their old pricing model out the window for next year. For some smaller, independent companies, the answer is to trim the fat from their seed portfolios and brace for another lean year, in solidarity with their customers.
A STUBBORN INPUT
Before the advent of biotech traits, corn and soybean seed prices roughly followed the value of the crop -- when commodity prices were low, seed prices dropped to reflect it; when commodity prices rose, seed prices followed.
The development of genetically modified seeds, including herbicide-tolerant and Bt traits, in the mid-1990s disrupted that paradigm. Companies now had to seek returns on their multi-million-dollar biotech investments, regardless of grain prices, Tom Burrus, president of Burrus Hybrids noted. "Seed prices have gone up virtually every year since that time," he said.
The trend continued in 2016, even as commodity prices sank below many growers' breakeven points. In an annual survey of its growers, Granular, a farm management software company, reported that 2016 seed costs dropped only 1% from 2015 prices.
MYCOGEN MIXES IT UP
The trait-driven pricing strategy has dominated the industry for at least a decade, said Damon Palmer, general manager of Mycogen Seeds. "We're walking away from that," he told DTN. "We've developed new regional pricing zones, using data points on hybrid yield and performance from over five years. We're really trying to understand where each hybrid performs well and where farmers would see a return on investment."
The new value-driven pricing strategy will only affect the brand's corn line-up in 2017, Palmer said.
When growers examine their Mycogen corn options this fall, they'll find a streamlined system, he added. Within each regional pricing zone, farmers will find a maximum of eight different price points, down from upwards of 40 in the past. Those prices will reflect the regional value of each hybrid for a farmer -- and not necessarily the traits in that hybrid, Palmer said.
"For many farmers, having more traits doesn't necessarily mean high-producing hybrids, but that's usually what you'll see in pricing," he said. Mycogen will bring 30 new hybrids comprised of different trait offerings to the market this year, Palmer said. "But the pricing will be based on how that hybrid itself performs in that regional area and yield goals expected in that region, regardless of the trait package" he explained.
To calculate this new pricing strategy, the company analyzed five years of yield and performance data, culled from both USDA and the company's own test plots. They also consulted and worked with Rockney Walters, a marketing professor specializing in pricing at Indiana University's Kelley School of Business.
OTHER COMPANIES' STRATEGIES
Mycogen isn't alone in hoping to ease farmers' input burden in 2017. As an independent seed company that doesn't answer to shareholders, Burrus Hybrids has some flexibility in setting its price points each year, Tom Burrus said.
The company's 2017 corn line-up features 18 hybrids with a lower price point, six with a higher price point, with the rest remaining static, he said. Their 2017 soybean portfolio features no higher prices, he added. Ten varieties will be priced lower and the rest will stay stable.
Burrus has focused on picking only the traits and seed treatments -- a growing profit tool for seed companies -- that had clear yield benefits, which meant trimming potential revenue for 2017, the company's president said.
"Our margins will take a hit this year, but we're managing for the long run," he said.
Other companies, such a Pioneer and Monsanto, are mostly staying the course in their 2017 seed pricing.
Drew Porter, Pioneer's director of product marketing in the U.S. and Canada, said the company has broadened the range of prices in its corn and soybean portfolio in the past few years but made no major adjustments to their pricing strategy.
Monsanto's product communication's lead, Jeff Neu, echoed that sentiment, and added that "most existing products' pricing will be flat to down" in 2017. Both Neu and Porter stressed their financing options for farmers, such as 0% interest financing programs and early purchasing cash discounts.
While seed companies readily discuss overall pricing strategies with DTN, they declined to give specific dollar amounts for either various price points or the range of prices a hybrid would sell for in a value-based system.
All the companies contacted noted that demand for non-traited conventional corn and soybeans has been stable, and none expressed any intention of increasing the availability of untreated soybean seed or offering untreated corn seed. "We get questions about untreated seed, but it's a good place to spend just 1 bushel of yield to gain back 2 or 3," Burrus said. "It gives better protection from disease or insects, you buy 90% treated seed, and we furnish 100% free replant. It's a dang good investment."
Cole Hansen, Mycogen's corn portfolio marketing leader, insists that this year's corn pricing strategy is not a short-term reaction to lowered commodity prices, but a long-term pivot back to the value-driven pricing model.
"We believe this approach will continue whether corn is $4 or $7, because it's more simply about maximizing return on investment in each field," Hansen said.
Emily Unglesbee can be reached at Emily.Unglesbee@dtn.com.
Follow Emily Unglesbee on Twitter @Emily_Unglesbee.
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