Minding Ag's Business

Mercy! Those Organic Premiums Look Tempting

USDA says premiums for organic field corn have collapsed 35% in the past year, from $12.86/bu to $8.38/bu. Still, that looks appealing compared to $3.20 cash corn.

Randy Hughes raises conventional row crops, but premiums on organic production are what's paying the bills on his family's 5,000-acre Janesville, Wisconsin farm.

The alternative agriculture route requires much more labor and attentiveness, as DTN's Elizabeth Williams reports (see Farm Business page). On top of the three year "wait" when someone transitions land to organic certification, those negatives could discourage many converts. At the moment Hughes remains convinced the rewards outweigh the labor demands and complications of organic production.

Unfortunately, there's no assurance profit margins will stay at this lofty level forever.

Back in 2014, organic yellow feed corn earned $14/bu. But big premiums have already nosedived, slipping to $12.86/bu. in 2015 and $8.38/bu. this March, according to the Agricultural Marketing Service (see https://www.ams.usda.gov/…).

The question is, will a slew of newcomers flood the organic corn market, ultimately making organic just another commodity?

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The Organic Trade Association (OTA) doesn't think so. Already organic corn accounts for 25% of U.S. corn imports, typically from Romania and Argentina, it says.

"We have a long way to go before the market is saturated," Laura Batcha, OTA's executive director, tells DTN.

Organic field corn accounts for just 0.3% of U.S. acres now, or about enough to fill a good sized Illinois county. It does seem there's room to grow, since organic feed demand for dairy and meat is on the rise.

Lynn Clarkson, owner of the specialty grain firm of Clarkson Grain, Cerro Gordo, Ill., also doubts organic row crops will overwhelm demand.

"At some point we could hit market saturation, but we are far from that today," Clarkson told DTN, noting overall organic markets are increasing about 11% a year. "Almost every major grocery store chain wants to have private label organic products. The dynamism in the grocery store is in organics."

For example, he says Kellogg is trying to encourage more organic production by offering some premiums to farmers in the transitional years from conventional to organic (although the cropit doesn't qualify for the organic label). Additionally, crop insurance rules are changing to accommodate organic's higher prices and transition years.

A popcorn producer from the eastern Corn Belt tells me his local buyer will be accepting organic production in the near future. Operations that work closely with organic dairies would have a leg up in filling those needs, he figures. In addition, the premiums look enticing.

"Is this where the puck will be in the future?" he asks.

Clarkson thinks so.

"Roughly 70% of the organic soybeans used in the U.S. comes from overseas -- not because of price, but because it is difficult to find raw material in the U.S.," he says. "I have a sense there is a lot of unmet demand. U.S. farmers are losing opportunity to overseas supplies. The demand for organics is robust."

What would you advise someone window shopping the organic market?

Follow Marcia Taylor on Twitter @MarciaZTaylor

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