Organic and Conventional Crop Budgets. Michael Langemeier Department of Agricultural Economics Purdue University

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1 Organic and Conventional Crop Budgets Michael Langemeier Department of Agricultural Economics Purdue University

2 Outline Organic Certification and the Transition Process Production Plan Comparisons Enterprise Budgets and the Transition Decision FINBIN Summary, University of Minnesota Organic Crops Conventional Crops

3 Organic Certification and the Transition Process Organic certification requires that crops do not receive any synthetic chemicals including fertilizers or pesticides for three years prior to the harvest of the crops. A change from conventional to organic production is typically done on a field-by-field basis rather than a whole-farm basis.

4 Organic Certification and the Transition Process Organic producers typically use longer crop rotations than their conventional counterparts. Small grain, legume, corn, and soybeans Small grain, corn, and soybeans Spreadsheets are being developed to handle both of the above rotations

5 Production Plan Comparisons Current Work Conventional Production Plan 10 years: corn/soybeans Transition Production Plan 10 years: small grain/legume/corn/soybeans Transition takes place over time Organic corn is produced in third year on a portion of the acres Full transition does not occur until sixth year

6 Conventional Production Plan, Year 1-5 Current Work Field Year 1 Year 2 Year 3 Year 4 Year 5 #1 Corn Soybeans Corn Soybeans Corn #2 Soybeans Corn Soybeans Corn Soybeans #3 Corn Soybeans Corn Soybeans Corn #4 Soybeans Corn Soybeans Corn Soybeans

7 Conventional Production Plan, Year 6-10 Current Work Field Year 6 Year 7 Year 8 Year 9 Year 10 #1 Soybeans Corn Soybeans Corn Soybeans #2 Corn Soybeans Corn Soybeans Corn #3 Soybeans Corn Soybeans Corn Soybeans #4 Corn Soybeans Corn Soybeans Corn

8 Transition Production Plan, Year 1-5 Current Work Field Year 1 Year 2 Year 3 Year 4 Year 5 #1 Corn Soybeans Corn T Oats T Alfalfa #2 Soybeans Corn T Oats T Alfalfa Org Corn #3 Corn T Oats T Alfalfa Org Corn Org Soy #4 T Oats T Alfalfa Org Corn Org Soy Org Oats

9 Conventional Production Plan, Year 6-10 Current Work Field Year 6 Year 7 Year 8 Year 9 Year 10 #1 Org Corn Org Soy Org Oats Org Alfalfa Org Corn #2 Org Soy Org Oats Org Alfalfa Org Corn Org Soy #3 Org Oats Org Alfalfa Org Corn Org Soy Org Oats #4 Org Alfalfa Org Corn Org Soy Org Oats Org Alfalfa

10 Enterprise Budgets and Transition Decision (Current Work) Budgets: Conventional Corn/Soybeans Transition Oats/Alfalfa Organic Corn/Soybeans/Oats/Alfalfa Annual Returns for Each Crop Gross Revenue Contribution Margin Earnings

11 Enterprise Budgets and Transition Decision (Current Work) Sensitivity Analysis: Minimum organic corn and soybean prices holding organic yields constant Minimum organic corn and soybean yields holding organic prices constant Minimum organic corn and soybean gross revenue

12 FINBIN Summary University of Minnesota Compares organic and conventional crop rotations Organic Rotation: Corn, Soybeans, Oats, Alfalfa Conventional Rotation: Corn and Soybeans Limitation: Breakeven prices do not include opportunity cost on owned land

13 Corn Yields per Acre FINBIN, University of Minnesota Organic Corn Conventional Corn

14 Soybean Yields per Acre FINBIN, University of Minnesota Organic Soybeans Conventional Soybeans

15 6.0 Labor Hours per Acre FINBIN, University of Minnesota Organic Corn Conventional Corn Organic Soybeans Conventional Soybeans

16 12.00 Gross Revenue, Total Expense, and Net Return per Bushel for Corn FINBIN, University of Minnesota Gross Revenue Total Expense Net Return to Land

17 30.00 Gross Revenue, Total Expense, and Net Return per Bushel for Soybeans FINBIN, University of Minnesota Gross Revenue Total Expense Net Return to Land

18 FINBIN Summary University of Minnesota Crop Breakeven Price Net Return to Land per Acre Conventional Corn $4.12 $86.80 Conventional Soybeans $9.17 $ Organic Corn $6.53 $ Organic Soybeans $19.71 $ Organic Oats $7.14 $89.23 Organic Alfalfa $ $256.21

19 Mercaris Market Update, 12/11/18 Per Acre Premiums for Organic Corn and Soybean Revenue per Acre In 17/18 Corn = $598 Soybeans = $262

20 Questions, Comments

21 Trends in Midwestern Organic Grain Buyers Preferences and Characteristics Nick Lancaster, Graduate Student Ariana Torres, Assistant Professor Department of Agricultural Economics Purdue University

22 Data Collection Data collected May - November Interview of organic and non-gmo grain buyers 45 total completed surveys Questionnaire 69 questions Grains purchased Types and characteristics of agreements Purchases of imports other grains (small) Sample, storage, and transportation Relationships with farmers and suppliers Business demographics

23 Who are the buyers: size of operation

24 Who are the buyers: type of operation *Categories are not mutually exclusive

25 If livestock producer or feed mill Other: Fish Goat Sheep Horse

26 Types of organic grains purchased

27 Feed vs Food Grade Breaking down organic grain purchases into feed- and food-grade (average percentages) Breakdown is moderately close, however food-grade organic grains composed roughly 6.5% more organic grain purchases Similar trend in Transitioning and Non-GMO

28 Potential Sourcing Effect Organic region > Non-GMO/Transitioning>Conventional Seems logical, but need to fully analyze data

29 Organic grain contracts Other 3% Spot (Open Market) 36% Fixed Quantity 39% Fixed Acreage 22%

30 Determining price premiums for organic In order of importance 1. Expected market demand 2. Expected domestic supply 3. Anticipation of future prices 4. Quality of the grain supplied 5. Length of relationship with supplier 6. Proximity to suppliers 7. Availability of imported organic grains 8. Supplier s flexibility in drafting terms of the agreement

31 Payment after delivery (days) Organic Transitioning 1-45 Non-GMO Conventional 0 Organic Transitioning Non-GMO Conventional

32 Storage and Handling for Organic Buyers pull before and/or at delivery Many pull both Composite sample from each truckload most common Common tests: GMO level, moisture, test weight, foreign materials, mold/mycotoxins, infestation, smell Storage requirements for producer may be increased in Fall

33 Buyer Preferences Factor Clean truck affidavit Crop insurance Supplier delivers grains Organic certification Supplier cleans grains Requirement Required Not Required Preferred (Not Required) Required Preferred (Not Required)

34 Imported Organic Grains Purchased

35 60 Organic Corn Supply/Demand Volumes 50 Million bushels / / / /2018 Domestic Imports Total Demand Data adapted from Mercaris, 2018

36 25 Organic Soybean Supply/Demand Volumes 20 Million bushels / / / /2018 Domestic Import Total Demand Data adapted from Mercaris, 2018

37 Million bushels Organic Wheat Supply/Demand Volumes 2014/ / / /2018 Domestic Imports Total Demand Data adapted from Mercaris, 2018

38 Imported Organic Perceptions Statement Result There is a shortage of domestic organic grain supply Agree Imported organic grains are cheaper The quality between imported and domestic organic grains is comparable There is a lack of transparency in the certification process for imported organic grains Agree Disagree Agree

39 Support provided to farmers

40 Buyer Predictions Organic Grain Demand

41 Buyer Predictions Organic Grain Supply

42 Buyer Predictions Organic Grain Prices

43 Data not covered here More comparisons between organic vs transitioning/non-gmo vs conventional Many more buyer perceptions and requirements More detailed information for storage/handling and testing More detailed business demographics Open-ended questions allowing buyers to give additional pertinent information not included in questions *Series of extension publications started*

44 Thank you! Questions?