Analysis: Nervous farmers scramble for corn seed after drought

CHICAGO (Reuters) - Ohio farmer Rob Joslin is not taking chances with his corn seed, despite assurances that seed companies emerged from this summer's devastating drought with adequate supplies.

Joslin, who grows corn and soybeans in western Ohio, began buying seed in August, months earlier than usual, to lock in the best-yielding varieties. Farmers are "concerned about getting their seed varieties, especially corn," he said. "It may not be there come December 1."

Coming off the worst drought in more than half a century, farmers in the United States are scrambling to get their hands on the best corn seed this year to ensure they plant a bumper crop next spring. Their success could be pivotal in keeping food prices stable across the globe.

Two of the nation's leading seed companies saw the risk of a shortage coming and boosted seed imports by up to 20 percent to guarantee supplies.

With plans to plant a massive number of acres to corn for a second year, farmers want to avoid last year's struggles to find some top-performing varieties that were scarce after poor weather reduced production.

The drought reduced harvests again this year in the United States, which accounts for one-third of global corn exports, and lifted corn prices to record highs, pinching livestock producers who use the crop for feed and companies that crank out ethanol.

At the height of the price surge this summer, there were fears of a devastating food crisis like in 2007/2008 when riots broke out in some countries and the ranks of the chronically hungry ballooned by 75 million according to United Nations Food and Agriculture Organization data.

But seed supplies are sufficient this year, according to sellers like DuPont Pioneer and Monsanto, which dominate the $12 billion agricultural seed business in the United States. Companies say expanded corn plantings compensated for yields that were down 25 percent or more, and they cite timely rains in certain areas for helping avoid severe crop losses.

Seed supply is crucial for next year as top-performing varieties have the best chance of producing the large harvest needed to replenish low corn inventories and bring relief from high prices. While saying the total supply is adequate, some companies warn the quick pace of early sales could leave slow-moving farmers planting varieties that do not perform as well in adverse conditions.

FEELING THE SQUEEZE

Seed companies large and small have their eyes on supply after back-to-back years of depressed production.

Total U.S. corn production this year is estimated at a six-year low of 10.725 billion bushels, 27 percent less than the U.S. Department of Agriculture's initial estimate last spring.

Elk Mound Seed Co in Wisconsin signed contracts to buy roughly 20 percent more corn seed from the 2012 harvest than it did in 2011, in hopes of avoiding a crunch.

However, the increased acres under contract were offset by yields that missed expectations by about 20 to 25 percent, owner Mike Zutter said.

"We're really glad we did contract for more, because now we're not going to get to get the fills" on all of the orders, he said.

"I'm not going to holler wolf," he said. "There'll be seed out there. Is it tight? Yes."

Stine Seed Co, which says it is the largest independent U.S. seed company, planted more acres in the United States and contracted to import almost 20 percent more corn seed from South America this year.

The company decided to increase its imports "considering what we went through the year before" with tight supplies, said Myron Stine, vice president of sales.

"We'll still be short on particular hybrids," he said.

GEOGRAPHY MATTERS

Companies were more or less vulnerable to crop damage depending on where their seed was produced.

Stine Seed produces about two-thirds of its seed in central Iowa, where yields were down but still generally "good," Stine said. Some fields in Illinois, where southern areas were devastated, produced "nothing," he said.

If "you're going to Indiana, Iowa," Stine said, "the drought is just not as severe."

Pioneer, one of the world's largest seed companies, grows seed across the Corn Belt, from Nebraska to Indiana, with the large geographic area designed to mitigate events like the drought that devastated crops in certain regions and not others.

The company increased its plans to import seed from South America during the summer as the severity of the U.S. drought came into focus.

However, its "actual reliance on imports has actually tended to dwindle" because U.S. yields were not as bad as expected, said Dan Case, supply planning manager.

"Certainly this was one of the most challenging production years I've seen," he said, declining to detail the U.S. yields. "We've been really pleasantly surprised with the yields."

Corn grown for seed is a smaller subset of production. Companies produce it on their own land or sign contracts to buy it from farmers.

Corn grown for seed often suffers severe damage from poor weather because it is produced from a genetically pure line that has not been bred with multiple traits to combat adverse conditions. By contrast, corn grown for grain is hardier because it is a hybrid of the best qualities of pure varieties.

Farmers used 25 million bushels of corn for seed in the marketing year that ended on August 31, up 2.4 percent from the previous year due to expanded plantings, according to the Agriculture Department. That means about 0.2 percent of the total crop was used for seed.

EARLY ORDERS, EARLY PAYMENTS

Monsanto, the world's largest seed company, is "confident in supplying seed for the coming year," President Brett Begemann said on an earnings call last month, predicting that farmers for a second year will plant corn on nearly 96 million acres.

He noted the supply situation is "remarkably similar" to last year because weather "stretched" seed production in both years. The company declined further comment.

"As farmers turn toward next year, seed is a priority," Begemann said on the call.

That's true for Joslin and other farmers placing orders early.

Illinois-based Wyffels Hybrids has "seen a lot of early orders and early payments," said Jeff Hartz, director of marketing.

"People are really after strong genetics that they think are going to perform," he said.

Yields at Wyffels' seed farms in northern Illinois caught "lucky" rains and were roughly 10 percent below average, much better than the 40 percent losses the company said were possible, Hartz said.

Wyffels has a good supply of seed on hand after expanding plantings last spring, he said, adding that some top varieties could run short industrywide.

Referring to Wyffels' supply, he said: "We feel like right now it's probably a competitive advantage."

(Reporting By Tom Polansek; editing by Jim Marshall)

Source: http://news.yahoo.com/analysis-nervous-farmers-scramble-corn-seed-drought-070247962.html

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