Contributed Content: Growing Demand for Organic Corn, Soybeans Creates Opportunities for U.S. Farmer

NOTE: This article was reprinted from the Organic Broadcaster newspaper with permission from the Midwest Organic & Sustainable Education Service (MOSES). View the original article.

U.S. farmers looking for a profitable opportunity in a rapidly developing market need not look any further than their own backyard – if they can produce organic soybeans or corn.

The growing demand for organic feed ingredients, driven primarily by large investments in organic poultry production, has created an ever-tightening supply situation in the U.S. that threatens to get even tighter due to inadequate U.S. production coupled with concerns about imports of potentially fraudulent organic soybeans and corn from questionable players halfway around the globe.

Just over a year ago, the Washington Post broke a news story about a large shipment of soybeans that had traveled from Ukraine to Turkey, and then to California, that was fraudulently labeled as organic. While organic farmers had been asking the USDA National Organic Program (NOP) for months to look into rising imports from overseas (see the September 2016 Organic Broadcaster), this very public news story and the questions it posed set off a mad scramble at the NOP and among industry players to get a handle on how this incident happened, and figure out how to put in place new rules or programs that could prevent, or at least greatly reduce, the chances of this happening again in the future.

The response by both public and private sector players produced a number of backward- and forward-looking initiatives that seem to be paying off already for U.S. organic farmers. The net result of this closer look has been a significant decrease in organic imports in 2018 while demand and prices for U.S. produced organic soybeans and corn have been on the rise. And with commodity prices currently in the basement for conventional soybeans and corn, along with the market instability created by the current administration in Washington, it would appear that there is no better time than the present for U.S. farmers to increase acres committed to organic production.

In response to the discovery of the fraud, the USDA began working on improving organic enforcement activities by expanding training programs for certifiers and inspectors and holding direct meetings with certifying agencies in both the U.S. and Europe to review inspection procedures. In addition, NOP asked the National Organic Standards Board (NOSB), which reviews and develops new rules for the NOP, to provide recommendations to improve oversight of organic imports. During last fall’s and this spring’s NOSB meetings, the board convened an Imports Integrity Panel of industry and trade experts – along with certifiers, inspectors and agency staff – to review the situation, offer solutions, and support further development of best practices for protecting organic integrity.

Practice changes already initiated by the USDA NOP in 2017 and 2018 include: improving how import and export certificates are used in trade; increasing collaboration between APHIS (Animal and Plant Health Inspection Service) and CBP (Customs and Border Protection) on import oversight; improving data quality, and increased reporting to the Organic Integrity Database. In addition, the agency is exploring the use of new technology such as blockchain to better manage data and verify product movement across international supply chains. (www.ams.usda.gov/sites/default/files/media/ActionUpdatePlanEnforcement.pdf)

Adding to the action at the USDA, the Organic Trade Association (OTA) convened a Global Organic Supply Chain Integrity (GOSCI) task force in June 2017 that has since created a best practice guide with initiatives that can be implemented by companies involved in organic trade to further reduce the chances of fraud in the organic supply chain. In May of this year, OTA announced that it had kicked off a pilot program based on the GOSCI recommendations, with a select group of companies, to test drive some of the new practices and see how effective they are in actual trade.

Increased Need for Domestic Production

The net result of these actions has been increased vigilance and enforcement along the supply chain, with the USDA NOP revoking organic certification for those caught in fraudulent activities. However, the real prize and benefit for U.S. farmers has been the increased demand and higher prices for domestically produced soybeans and corn used for organic feed.

“Protein producers [livestock and poultry] need to protect their brand, and heard quite clearly the shot across the bow from last year,” said Ken Dallmier, president of Clarkson Grain Company in Cerro Gordo, Ill., one of the country’s largest identity-preserved soybean suppliers. Dallmier believes that U.S. poultry producers who are driving this rapidly growing demand for organic feed understand “the value of securing the brand reputation by utilizing U.S. versus imported supply to meet their feed needs.”

While the U.S. organic feed market may need imported grain to meet current demand, there is plenty of land available to transition to organic production if U.S. producers are willing to make the investment for the future. At this point, less than 1 percent of total U.S. soybean and corn acres are being farmed organically.

According to the latest USDA NASS survey on organic production published in the fall of 2017, U.S. farmers harvested nearly 25.6 million bushels of organic corn on almost 214,000 acres, and just over 4.6 million bushels of organic soybeans from almost 125,000 acres in 2016. During that same year, U.S. buyers imported 21.7 million bushels of organic corn and 13.8 million bushels of organic soybeans—more than half of the total U.S. supply of organic soy and corn for that year. Based on USDA-reported average yields, those imports represent nearly 600,000 acres of production worth nearly $400 million.

The import numbers clearly show that the U.S. feed market has grown dependent upon these shipments to meet the rapidly growing demand. However, in the months following the May 2017 news article on the fraudulent imports, the monthly volume of imports for both organic soybeans and corn began to decrease – slowly for soybeans, but more quickly for organic corn. (See tables.)

By the end of 2017, while total imports of soybeans had increased 15 percent over 2016 to reach 15.9 million bushels, the volume of imported corn dropped by 33 percent to hit 14.6 million bushels. Looking more closely at the January to June period of 2018 compared to the same period in 2017, we can see that organic soybean imports are down 19.1 percent from the previous year in those first six months, while organic corn imports are down by a whopping 81.4 percent during that same period. How the rest of 2018 pans out is still to be determined, but a tight domestic supply of old crop this summer along with continued strong demand from the organic poultry sector, has spurred on the need for some additional imports.

Greg Lickteig, a director at The Scoular Company, one of the leading organic grain suppliers in the U.S., reported that, based on activity he has seen this summer, “if they [corn imports] continue at the current pace, we will be down only about 8 percent year-on-year by September.”

Given the large demand for organic corn and soybeans for the feed industry, and the time required to transition conventional acreage to organic, we will see imports continue for some time to come. However, the increased demand and preference for U.S.-produced organic grains is beginning to show itself in rising prices being paid to farmers for organic grain as imports slow down. This is happening at the same time that conventional farm-gate prices have dropped to recent historical lows—below the actual cost of production. Perhaps there has never been a better time to get into the organic market.

“We’re definitely seeing more interest at the grower level,” reported Louis Paquin, sales director of feed and corn for SunOpta, Inc., a specialty grain supplier and processor. “They want to better understand the agronomics and economics of the market. Farmers see that organic has continued to move upward even while CBOT [Chicago Board of Trade] moves downward.”

Since January of this year, according to USDA reports, farm-gate prices in the U.S. have risen from $17.70 per bushel for feed grade organic soybeans to $19.98 as of June, a 12.9 percent increase, while corn has risen from $8.95 to $10.47, up 17.0 percent. During the same time frame, the average price paid for imported organic soybeans rose just 6.1 percent, from $16.00 per bushel to $16.97, while the price for organic corn imports dropped 24.6 percent, from $11.41 to $8.60 per bushel, showing a clear disfavor for the corn imports. (See tables.) While the recent rise in domestic prices may be somewhat a reflection of short summer supply and strong demand, continually growing demand for U.S. product should keep prices attractive for American farmers for at least the next few years.

Encouraging Market

“We expect to see further expansion of this market going forward,” Paquin said. “Poultry is pulling demand and more large poultry processors are getting into the market.”

According to a 2018 consumer study published by OTA, retail sales of organic meat, poultry, and fish hit $1.2 billion in 2017, growing 17.1 percent from the previous year. Poultry represented 62.9 percent of those protein sales and grew at 20.0 percent, leading the category’s growth.

Regarding prices, Paquin added that “although we are expecting a big organic crop this year, prices should stay flat to bullish for corn and perhaps there are more upside opportunities in soybeans as there was a lot of corn planted.”

Clarkson Grain’s Dallmier was happy to see that even with the collapse in prices for conventional soybeans and corn, organic soybeans were still selling at over two times the price of conventional soybeans; organic corn prices were nearly three times the price of conventional corn.

“While organic prices are not directly tied to CBOT, there has been a casual relationship between the two, with organic crops typically selling at two to three times the price for conventional,” Dallmier explained. “With these prices and the opportunity to have a guaranteed price contract, there is clearly growing interest in organic with more farmers asking about how they can transition.”

Based upon the amount of organic corn and soybeans imported in 2016 and 2017, annual U.S. production appears to be short to the tune of nearly one million metric tons of organic grain, or about 600,000 acres of these crops. If the average organic operation is around 300 acres (USDA estimates), the U.S. market needs at least 2,000 more farms producing organic feed grain to meet current demand. Given the standard rotation of three to four years for organic crops, the needed acreage grows even larger—a big reach, indeed. Clearly, opportunities are there for both small and large producers to enter this rapidly growing and profitable market segment.

Peter Golbitz is president of Agromeris, a consulting firm focused on the unique needs of the specialty food and agricultural marketplace. His email is peter.golbitz@agromeris.com.