The Hunt for Profits

Organic Premiums Lure More Corn Acres

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
Prices for organic corn plunged to $8.38 per bushel in March 2016, compared to $12.86 per bushel a year earlier. But that's not discouraged some corn growers who plan to expand their organic acres. (Graph courtesy USDA Ag Marketing Service)

INDIANOLA, Iowa (DTN) -- Tumbling commodity profits have producers scurrying for ways to pump up their bottom line. After controlling costs and better marketing, conventional farmers are looking at other alternatives to bring in extra cash. Organic crops perhaps?

"I get two to three calls per day from farmers wanting to know about raising organic corn and soybeans," said Randy Hughes, who farms 3,600 acres of conventional crops, 400 acres in transition to organic and 1,000 acres of organic crops near Janesville, Wisconsin. Randy and his wife, Judy, recently recruited both their son and daughter back to the business to keep up with the farm's growth.

PREMIUMS STILL LOOK TEMPTING

With $35.9 billion in retail sales of organic food in 2014, according to a survey by the Organic Trade Association, organics have graduated from the "fad" stage. But, organic crops are still a "niche" market, only accounting for 4% to 5% of the total U.S. food sales. The allure is they can be highly profitable.

You can get $8.50 per bushel for organic corn (when conventional corn is selling for $3.80). Organic soybeans can bring $20 per bushel and organic wheat is currently priced around $8 per bushel, according to the Agricultural Marketing Service's latest bi-weekly report. Those prices have plunged significantly since 2014, but still appear enough to encourage more organic acres.

Compared with conventional farming, the cost of production for organic commodities can run as low as $5 to $10 per acre more, reported Lynn Clarkson of Clarkson Grain, which buys organic grain and oilseeds, in Cerro Gordo, Illinois. (However, total economic costs of organic compared with conventional production were roughly between $83 and $98 per acre higher for corn, a national 2015 USDA study estimated.)

"You can get by with disking in your cover crop and manure for your fertilizer. Extra machinery costs for cultivating weeds is your main extra expense," said Clarkson.

Yields are lower, but are more than compensated for with higher prices. Wisconsin farmer Hughes reports 175- to 180-bushel organic corn yields under irrigation and 70 bpa wheat.

The net return on organic farming can be two to five times as much as conventional farming, said Clarkson.

The reasons organic returns are so high:

1. There is a three-year transition period before you can be certified "organic."

2. It takes a tremendous amount of management and time to control weeds.

3. You must rotate crops.

4. Organic grain must be segregated from conventional crops.

To be certified organic, your soil cannot have had chemicals (including non-organic fertilizer) applied to it in the past three years.

"That discourages a lot of farmers because they change their behavior but don't get rewarded until three years later," said Clarkson. "However, we are working with USDA and buyers to get an 'organically produced' designation that will garner a premium, albeit smaller than for 'organic,' for years one and two of the transition."

BABY THE CROP

Landon Kane, a 24-year-old farmer from Oelwein, Iowa, converted a 53-acre field that had been in hay for five years to organic corn and is switching another 93 acres into hay with the goal of converting it to organic row crops.

"It helps that we have access to manure and we can use the hay," explained Kane, whose family farm raises 2,400-head of hogs, 125-head of cattle, 40 stock cows, over 100 show goats and sells small square hay bales to horse owners.

Weed control is key. "It can be a steep learning curve if you're used to just going out and spraying any weed escapes," explained Hughes. You have to start with soils that drain well and are not highly erodible.

"If it's warm and wet, you've got to be able to get in the field soon to till the ground, or the weeds will take over. You can't go a week in the spring and early summer without cultivation," added Hughes. The Wisconsin farmer recognizes he won't be able to go 100% organic because he has some heavy, low ground that prevents timely cultivation in wetter years.

Clarkson said organic corn farmers need to rotary hoe right after planting and then cultivate two or three times. For soybeans, which don't canopy as quickly as corn to shade out weeds, you need two or three rotary hoe trips and at least two cultivations to control weeds.

"I rotary hoe every day, if I can. I keep cultivating until it starts to hurt the crop," said Hughes. "In fact, you have to plant crops a little thicker to allow for some cultivation damage. If you want a 30,000 plants-per-acre stand, you have to plant 35,000 ppa."

And you have to keep checking your crop. "It's like going back to old-school farming," admitted Kane. "As with livestock, you have to watch it every day. You have to baby it. If you see a big weed, you have to go out and pull it."

Weed control nullifies much of the premium offered for organic soybeans. Hiring people to "walk beans" can range from $40 to $300 per acre, depending on weed pressure and the price of your labor, said Clarkson. Unfortunately, you can wind up giving back all your premium in manual weed control.

Crop rotation is also critical. You must work in a timely cover crop to control weeds, insects and diseases, Hughes explained. Hughes coordinates cover crops of rye, alfalfa and other legumes with his organic crops of yellow and blue corn, soybeans, wheat, sunflowers, oats and vegetables to maximize weed control, cover crop viability and season length of his cash crop. He's been at this for 20 years and is still fine-tuning his cash crop and cover crop mix to optimize weed control.

BE NICE TO YOUR NEIGHBOR

"If your fields are surrounded on all sides by conventional corn fields, you won't be able to raise organic corn," noted Hughes. "You need to isolate your organic fields -- away from GMO crops and chemical drift. I have some neighbors who have agreed not to plant GMO seeds next to my organic fields. Sometimes, I'll rent a farm no one else wants because it is sandy and isolated -- it's cheaper ground but better for organic production," Hughes explained.

Some farmers only recommend trying organic on owned land. For rented ground, be sure to lock in a long-term lease.

Isolating your organic seed on your farm is also a challenge. "We thoroughly clean out all our machines, such as the corn planter and combine. We sweep and hose down every inch. You don't want any corn kernel left," said Hughes.

"We clean out our combine, and then just to be safe, we'll harvest 100 feet of organic corn to sell as conventional and then again blow out the combine to be sure all conventional seeds are removed," explained Kane. "We also have an isolated bin site that stores only organic grain."

THEN THERE'S PAPERWORK

If you don't like keeping meticulous records, raising organic crops is not for you. "You get inspected every year and they look at your records very closely," said Hughes. "If you raise 100 acres of 100-bushel organic corn, you better not be selling 12,000 bushels of corn as organic."

FINDING A MARKET

Because organics are still a niche market, you should price your grain or oilseed before you plant it. There are several companies that work on a broad scale such as Clarkson Grain, Scoular Grain, SunOpta and SK Food. You can contact the Organic Trade Association at www.ota.com for resources in your area.

If you're simply looking for a three- to five-year alternative to beef up your balance sheet before conventional crops become profitable again, Hughes would discourage you from going organic.

"It's a huge commitment. Satisfying and rewarding -- but not for someone who is not totally committed to changing how they operate," he said.

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EDITOR'S NOTE: For more information check USDA's Economic Research Service report on "The Profit Potential of Certified Organic Field Crop Production" (http://goo.gl/…) and www.ams.usda.gov/grades-standards/organic-standards.

See also related discussion the temptation of organic premiums on DTN's Minding Ag Business blog.

(MZT/AG/CZ)

Elizabeth Williams