By Dahn Clemens, AgriSecure Organic Grain Marketer, and Steve Sinkula, AgriSecure CEO
With COVID-19 causing conventional corn and soybean prices to fall, organic farmers may be wondering how the pandemic is going to affect their marketing plans.
Currently, organic corn prices are down — around $6.80 per bushel — because of strong production in 2019 and higher imports. Prices for organic soybeans, on the other hand, have risen above $21 per bushel due to a decrease in domestic production, along with delayed imports from countries like India and Argentina.
While every industry is facing some uncertainty at this point, we expect the organic market to be stable, for a couple of reasons:
1. Consumers eating at home has driven demand for organic snack foods
The demand for organic snack food was already strong before the pandemic, as it had increased more than 120% in the last two years. While the demand may level off from what we’ve seen in these first weeks of social distancing, we still expect it to continue rising the rest of 2020.
2. Demand for organic protein continues to be strong
Most organic corn and soybeans produced in the Midwest go to chicken feed, and we’ve seen demand for organic protein experience strong growth in the last couple of years.
There are some risks organic farmers may face. While logistics is relatively unaffected at this point, there could be some minor challenges in the future with interstate travel. We’re also seeing some meat processing plants shutting down because of the coronavirus, which could cause these mills to reduce their volume.
But we believe counterparty risks are still relatively low at this moment. While there’s always a possibility a buyer may not be able to follow through, if you did your research to find a reputable and established buyer, we don’t think you should worry at this point about who you’re delivering to.
Moving forward, there are some steps you can take to put yourself in a better position for marketing your crops during this time.
3 Steps to Take with Your Marketing During COVID-19
1. If you have nothing sold for 2020, get something on the books.
We understand right now that corn prices are lower than what you’re used to and you may be tempted to wait until you see $9 again. But if we have a great year for domestic production, prices are unlikely to see a significant rebound. Instead of waiting to sell right at harvest, we recommend you market some of your grains now, and then pay attention to opportunities throughout the planting season and into the summer.
2. Do some forward contracting for 2021.
We advise you get some of your 2021 product marketed starting late this summer into early fall.
Unlike conventional farming, we can’t see what crops are selling for in the future, so you’ll want to reduce your risk where you can. This doesn’t mean you need to sell all of your crop in advance — you should still have some options and diversity in your marketing. But while prices may be lower than the forward contracts you’ve had in the past, if you have an opportunity to lock in profit, take it.
3. Work with an advisor.
As we’ve discussed in a previous blog post, the organic marketplace is already very opaque under normal circumstances and can be challenging for farmers who are trying to market their crop on their own. With the uncertainty and possible disruptions that may occur from COVID-19, working with an advisor can be even more beneficial to learn about the best opportunities for your crops.
When you work with an advisor like AgriSecure, you get the perspective of the broker market, where the need is, where the grain is moving, and what disruptions there are in the supply chain.
For instance, we recently talked to a merchandiser for a soybean facility and learned they were no longer receiving a shipment from India because of COVID-19. They were concerned they weren’t going to have enough soybeans to mill. When an advisor can receive such valuable information and follow-up with insights for your farm, it can have a big impact on your marketing.
Marketing can be even more challenging for organic farmers because often you’ll need to make decisions when you’re in the thick of the growing season. By the time you may learn about a good opportunity, it could be too late for you to act on it. Not only does working an advisor help you lock in the best price possible, it also ensures you’re free to focus on the work you do best: farming.
Organics Still a Strong Opportunity
While prices may be depressed and the future remains uncertain, it’s still a good time to be an organic farmer.
At the moment, we (unfortunately) don’t see a lot of profit opportunities on the conventional side. But profit margins for organics can remain attractive when you run your operation as efficiently as possible and build a strong APH history to create an attractive revenue floor for crop insurance.
Moving forward, we believe there’s going to be an increasing need to continue optimizing your operation and make sure you’re getting that right mix of cost production and yield, so you have the appropriate break-even.
If you’d like to see an estimate of your break-even might be for organic (vs. conventional), try our free Break-Even Calculator. We also have an Organic Profit Calculator to help you discover the potential long-term revenue and profits you could generate from organics.
By making even marginal improvements, especially with yield, you can enhance your revenues and margins. We think there’s still a compelling opportunity to transition to organics or evaluate ways to optimize current organic farms, both in the short-term and for years to come.
If you need guidance on your marketing plans and support on ways to enhance efficiency and profitably at this time, we can help. Contact AgriSecure today for a free consultation.