Higher seed prices could pressure corn farmers

Corn seed prices are on the rise in China according to a recent report by Securities Daily. Farmers were already facing rising input costs due to rallies in fertilizer, logistics issues due to Covid restrictions, and rises in land rents and labor costs.

Corn seed prices have been rising after Chinese New Year, with some areas of Inner Mongolia seeing seed prices up more than 40%.

Planting area for seed corn increased by 17% in 2021, however bad weather conditions weighed on yields which fell 6%.

Overall seed production did increase by 8.5% and the overall seed supply is sufficient to meet this year’s demand. However, demand for high quality seeds has pushed prices up this year.

Seed corn growers are also suffering from the rising prices, and in some cases are more affected than typical corn growers.

In the article, one farmer noted that his urea cost has risen by 62% and his cost for ammonium phosphate surged 110%. Additionally, raising seed corn is more labor intensive and labor costs have risen to new highs last year.

The seed corn growing areas also suffer from a lack of efficiency due to small field sizes, a problem common in China. In order to improve mechanization and efficiency, officials have used earth-moving equipment to consolidate smaller fields. However, this also had the effect of disrupting the top soil and which could have a negative impact on yields over the next few years.

There has been a large policy push in recent years for China to improve its domestic seed industry. This has been tied into the push for self-sufficiency in food supply.

China wants to have a strong domestic seed production base, so it does not need to rely on imported seed technology. If farmers also develop seeds with better yields or drought resistance, this could also boost domestic production and reduce the reliance on imports.

This level of policy support encouraged many company to enter the industry with an estimated 1,600 to 1,700 companies currently operating in the seed corn space.

The increasing cost pressure faced by seed corn producers also shows why it will be difficult to meaningfully reduce China’s structurally higher grain prices.

Seed farmers need to pay more for fertilizer and labor, and those higher costs will need to be passed onto grain farmers next year. Grain farmers in turn will try to get higher prices for their harvest in order to offset their rising input costs.