Rising Prices in the Organic Soybean Market w/ Ryan Koory
Interview with Ryan Koory, Vice President of Economics at Mercaris
For the 20th edition of Organics Unpacked, we welcome back our very first guest, Ryan Koory. In our discussion, Ryan breaks down marketing trends for several organic commodities, especially soybeans, which have risen in price considerably over the past year. Using market trends and data analysis, he identifies the key drivers in the soybean market and the organic sector at large. Ryan serves as the Vice President of Economics at Mercaris, a market research company for organic and non-GMO commodities.
Learn more about Mercaris: www.mercaris.com
Connect with our guest on LinkedIn
INTRO: Welcome to Organics Unpacked, a podcast for the business-minded organic grower — an interview podcast where we hear from the top experts in the commercial organic industry, with a focus on the business elements of organic growing both in and out of the field. You will gain insight and grow your operation. This show is brought to you ad-free by Avé Organics, a Wilbur-Ellis company. To learn more about Avé Organics, visit our program notes. In the meantime, enjoy the show.
TOM: Hello, everyone. Thanks for tuning in today. Welcome to a new episode of Organics Unpacked, a podcast where we discuss organic farming from a practical view. I’m your host, Tom Buman. Today, I’m joined by Ryan Koory. Ryan’s the Vice President of Economics for Mercaris, a market research company for organic and non-GMO commodities. Ryan, welcome to Organics Unpacked.
RYAN: Thanks, Tom.
TOM: So, Ryan, you’re the first person I’ve interviewed twice now. We’re about 20 episodes into Organics Unpacked, so welcome back. You were the very first one, and so we appreciate you coming back and talking about organic markets again with us.
RYAN: Yeah, absolutely. It’s a pleasure and an honor to be on your podcast, to be breaking ground: the first one to do it twice, and the first one to do it at all.
TOM: Yeah, and I’m sure the markets have changed a lot. But before we get into the markets, I wanted to give you an opportunity, maybe, to give a little bit of background on yourself — how you got to the place where you are today — and a little bit of background on Mercaris because I know that it’s a unique company that offers a unique set of services to organic farmers. So you just want to talk a little bit about your background and the background of Mercaris?
RYAN: Sure. So my background, personally: I’m an ag economist by trade and by practice. I started doing conventional market analysis somewhere around 2010, I believe, and initially focusing on things like conventional livestock and dairy and biofuel markets. From there, I was approached by Mercaris. With Mercaris, I’ve had many fantastic opportunities to do some really amazing and innovative and groundbreaking things with agricultural market data, particularly within organics and non-GMO. So, really, that’s me in a nutshell. I’m just an ag/econ guy through and through. Really, coming into the organic and non-GMO sphere and being able to apply that way of thinking to a market that lacks most of the critical data that you take for granted as an agricultural producer, it’s just been a blast.
The Mission of Mercaris
TOM: So tell me about Mercaris, kind of the mission of the company and what services you provide.
RYAN: Sure. So I would say the mission of Mercaris is to provide critical market information and insights to identity-preserved commodity markets. And chiefly, what we focus on are our organic and non-GMO U.S. commodity markets, through field crops in particular. So, really, the origin and the goal of Mercaris is we started off as a price collecting agency, more or less, about 10 years ago now. And, really, what Mercaris does is we build networks of data partners within the organic and non-GMO areas. And through those networks of data partners, we’re able to put together holistic pictures of what’s going on within the U.S. organic and non-GMO sectors and provide those levels of insight that don’t exist. Historically, we’ve really focused on things like organic corn and soybeans and wheat and non-GMO corn and soybeans. But more recently, we’ve really started pushing into other markets, as well, looking at things like organic dairy. Recently, we launched an organic dairy report that comes out monthly. It includes annual updates or biannual updates to organic dairy cattle inventories for the U.S. — which, again, is something that doesn’t exist — estimates of organic dairy pay prices and organic cream prices, organic spot milk prices, things like that. But, really, that’s organic. I like to claim the goal of Mercaris is all the things that you would take for granted as a conventional producer, all those pieces of information. I want to provide those for the organic and non-GMO sectors.
Organic Trade Reports
TOM: Well, it sounds like a really important space to be working in. And I know that you have some tools for organic farmers that you offer. I mean, obviously, you have services you offer through Mercaris. Talk about a couple of the things that you provide, whether they’re free or for some type of a fee.
RYAN: Yeah, absolutely. As I mentioned, primarily what we are is an information reporting agency. And along those lines, we’ve produced things like reports around what organic trade looks like, particularly for the commodities that don’t have federal oversight in terms of what organic trade looks like: things like organic soybean meal and cracked corn. We do price reporting for organic commodities, all kinds of different pieces: organic acreage and yield estimates, organic livestock estimates. One of the things that we do try to provide within the organic sector is resources that organic farmers can use. And we’re aware that organic farmers in general — and farmers in general — tend to be resource-constrained individuals. The way we try to approach that is we have our free farmer program for organic producers. And anyone who’s interested in checking that out can go to mercaris.com/farmers and see what that is. But, essentially, with our free farmer program, what that is is you can go in and sign up and receive a report twice a month that essentially tells you what corn, wheat and soybean prices look like in the U.S. and the U.S. Corn Belt and kind of give you that level of perspective so that you can reality-check whatever marketing decisions you might be making. In addition to our free farmer program, one thing that we have as an option there for those who are interested is we also have our farmer market price survey. A lot of the information that we’re able to provide as an organization is because we built networks of data partners. By building those networks and being able to take those pieces of information and put them together, we can create a more complete picture of the markets and understand better what the risks are and what’s going on. So anyone who’s interested in joining that information network as a grower can go in, sign up for that free farmer program and, if they’re interested, join our organic farmers price survey.
TOM: So what I hear you saying is that you’re taking data from farmers. They’re giving you, farmers. You’re processing it, and then you’re providing it back to them in a way that helps them with decision-making.
RYAN: Absolutely, and that’s really our goal in a nutshell, right? To help everyone within the organic industry make better and more educated decisions with regard to their operations, whether it’s for production or procurement. If you’re growing livestock, or if you’re involved in trade, whatever it is, we want to help you make better, more informed decisions for your operation to help make the organic and non-GMO space more sound and more sustainable long-term.
Marketing Organic Field Crops
TOM: Well, we really appreciate the support that you’re giving to the organic farming community through your services. Thank you. Let’s switch gears now, and let’s talk about marketing. Last time you were on, you talked about some of the things that you were seeing in the organic space. First off, I think we probably need to clarify: what are the sideboards of the crops that you work with through Mercaris? What could people expect out of you? Then, maybe we can launch into: what are you seeing coming in the marketplace for some of the prices and availability of products in the space that you work in?
RYAN: Yeah, in terms of information that we put together and produce, we try to cover pretty much the whole pantheon of organic field crops. Everything from canola to cotton to corn, soybeans, flax, dry edible beans — pretty much everything that would fit into an organic field crop farm rotation — we produce acreage estimates for. On a fistful of those crops, we actually produce production estimates, as well, for things like soybeans and corn, different wheat varieties, as well as canola and sunflower in the U.S. Then, on some of the deeper analysis, in terms of global trade and things of that nature, we generally focus on things like organic corn and organic soybeans, just because there is a fairly substantial amount of that that comes into the U.S. market and really is a factor. But, then, we also do some bespoke research around imports of things within the broader organic oil seed market: things like canola oil and canola meal, sunflower oil, sunflower seed imports, things like that. We’re constantly growing our portfolio of information. We recently started expanding into things like organic dairy, providing organic dairy market reports on a monthly basis and inventory estimates. The sky’s the limit. As the industry continues to grow, we continue to add more and more pieces of information to our network.
TOM: So, kind of jumping back to one of the services you offer for those, that free pricing where you’re providing that free service to farmers at different prices, is that on all the commodities you cover or a few of them?
RYAN: So it’s on corn, wheat and soybeans specifically. And the reason that we do that is the free farmer reports that we produce, what they are is they’re biweekly average prices, whatever we’ve observed over the past two weeks. And once you get out of those three real big staple crops within the organic sector, it gets harder to report on that kind of granularity because they’re smaller markets, and they just don’t have that level of volume. But we do actually do some price reporting on a larger level, whether it’s monthly or quarterly, when you start looking at things like wheat and some of these other organic and non-GMO crops.
Analyzing the Organic Soybean Market
TOM: Okay, good clarification there. So let’s talk about a couple of the different commodities. I think, probably, in the few minutes leading up to this, we talked about the real mover in the market now might be soybeans?
RYAN: Yeah. Really, what we’re talking about right now, if we’re looking at the organic market, is we’re recording this on September one. It’s the cutting edge of the 2021 – 22 marketing year. What we’re seeing within organic soybeans is, over this past year — and I’m sure anybody who works in the organic space has noticed this, as well — organic soybean prices have been phenomenal. The level of escalation we’ve seen within that market has been substantial. If we were having this conversation at this point last year, we were talking about the organic soybean market. It had been relatively flat for about 18 months. We were seeing prices pretty consistently in the $19 – 20-21 per bushel, delivered to the U.S. Corn Belt elevators, average. Since then, really, what we’ve seen over this past year is prices have moved phenomenally. I think, over this past August, if I look at our pricing reporting, I think we saw contracts for organic soybeans — again, delivered to that U.S. organic Corn Belt elevator — they averaged somewhere closer to $31 – 32 per bushel. So that’s a pretty substantial increase that we’ve seen over this past year. And there’s a lot going into why we’re seeing that, and there’s a lot that goes into maybe risks around that price, as we think about this coming year. It’s been a very tumultuous and interesting year for someone who watches organic soybean markets and someone who doesn’t have skin in the game buying or selling them. I can’t imagine being on that side of the fence. There have probably been a few heart attacks.
Rising Organic Soybean Prices
TOM: So what’s moved the price? On soybeans?
RYAN: Whenever we look at what appears to have been the driving factor in the organic soybean prices we’ve seen over this past year, it really seems to be boiling down to supply. Again, if we kind of roll things back to where we were at this point last year, looking at harvest, if we look at what U.S. organic soybean production looked like, we had about 9% more organic soybeans produced in the U.S. last year, which brought us up to about 8.2 million bushels of organic soybean production. So we started the marketing year off with a little more. What’s happened since then, though, is we’ve had a pretty substantial decline in organic soybean imports. And if you think about the supply of organic soybeans — and we’re not going to talk about meal yet, but just looking at whole beans — historically, organic soybean imports have made up 50% or more of the U.S. organic soybean supply. Well, what we’ve seen over this past year is a substantial reduction in organic soybean imports. Again, thinking about that 2021 marketing year — and we’re working with projections for August because we don’t have final data yet — but it looks like we’re going to see organic soybean imports, whole bean imports, drop to about 8.8 million bushels, which still keeps them above U.S. production.
It’s important to note that, but that’s about an 18% reduction from what we imported over the previous year. So, if we take that bump that we saw in U.S. production with that substantial cut we saw in imports, on net, that puts us down about 7% year over year in terms of whole bean supply, organic whole bean supply, in the U.S. That’s a cut of about 1.2 million bushels in terms of what we’ve had supply over this past marketing year, relative to what we had in the previous year. And it looks like it’s really that cut to the soybean supply market, really coming from that substantial reduction in imports, that’s tightened up that supply and really added a lot of heat to soybean prices in the U.S. A lot of the conversations I’ve had with people who work on the procurement side, merchandising side, it’s been a scramble to find organic soybeans this year. And with that, we saw organic soybean prices escalate pretty substantially. We’re talking an average of about $30 – 31 per bushel. I’ve seen contracts go as high as $35 – 36 per bushel. It’s been just a brutal market to be sourcing organic soybeans domestically this year.
Declines in Organic Soybean Imports
TOM: So a couple of things first: it seems crazy to me that we are importing 50% of our organic soybeans when we are the production bread basket of the world, right? Crazy to me. But what’s lowering? What’s holding back the import of organic soybeans?
RYAN: That is the multimillion-dollar question this year. When we slice the import picture, and we look at where we’ve seen the decline, there really does seem to be a guilty figure. And that seems to be Argentina. We’ve seen a pretty substantial reduction in imports from Argentina this past marketing year. And the brutal truth is we simply don’t know why we saw such a substantial reduction. One potential situation could be — and this is likely a factor regardless — is, as everyone knows, this past year, from a global logistics perspective, has been extremely challenging, particularly if you’re sourcing anything that’s not coming from Asia. So much bandwidth has been trade between the U.S. and Asia. Speaking to people I know that work in the conventional sector, or even people who work with non-GMO soybean, they’ve had issues shipping stuff out of the U.S. because we’re sending back empty containers to Asia. Because they have such high demand, we’re not taking the time to fill them with U.S. organic grains and oil seeds, or not organic per se, but conventional non-GMO. So they’re getting sent back empty. So that vacuum of trade that’s occurred — and with all the port shutdowns and other challenges we’ve had — that could be a major reason why we haven’t seen so many beans coming out of Argentina over this past year. And it’s not just beans. Organic corn imports from Argentina were way down, as well, but it’s really that deficit in bean imports from Argentina that really seems to have brought down that top-line import number. And with that, that’s really what’s creating that hole in U.S. organic soybean supplies over this past marketing year.
Global Logistics & Supply Chain Challenges
TOM: So it’s not that they’re growing less. It’s really kind of the supply chain. And if that gets straightened out, we can expect that we will be importing more organic soybeans from Argentina again?
RYAN: Yeah, again, I would love to know the answer to that question. We speculate that a part of the reason that this has been such an issue is that global logistics have been such a challenge. And we know that China’s appetite has increased in terms of what they’ve been importing, but it’s unlikely that they’re pulling organic soybeans out of Argentina to go to Chinese markets whenever you can sell them into the U.S. at $30 per bushel or higher. It doesn’t make sense, really, that they’re siphoning them off. So it doesn’t seem like there’s a competitor buying this out of the market. From a production side, we do know Argentina has some drought issues, and they probably had some production problems as a result of that. We don’t have a clear picture at all of what organic production looks like in Latin America. So, as a result, what their domestic supply is, we just simply don’t know.
RYAN: Again, though, it seemed hard to come up with a perspective where, all of a sudden, they’ve had a 30% reduction in terms of what they have for exportable supply to the same kind of production. Maybe, but that seems to be. It doesn’t seem to fit the mold of thinking in terms of what we know we’ve imported from them in the past and the price premiums we’ve seen for organic soybeans in the U.S. If we tick-mark the things that look like they’re potential candidates, those things may be factors, but it could just be it’s largely this logistics situation. If we kind of cut into that a little bit deeper, we’re talking about these imports from Argentina being so low this past marketing year, and that’s true. But June and July saw huge ramp-ups in organic soybean imports from Argentina, right? So it’s the complete opposite of what we’ve just been talking about as this macro trend for the marketing year. But they’re kicking up, and they’re kicking up right ahead of the U.S. harvest. So does that mean that this has been a logistics situation? And now the logistics are cleared? And we’re going to see not just a return, but maybe an influx? There’s the potential that these beans have been sitting in Argentina, bought last year at $18 per bushel, waiting to make it into the U.S. market, where they can be sold at $30 per bushel. If that’s the case, then we could see a lot of beans coming in, and that could put a lot of downward pressure on the market right as we move into harvest. And I don’t want to scare anyone because we have no idea if that’s going to occur or not. We don’t genuinely know the driver behind that reduction in imports that we saw over this past year, but it is somewhat telling and potentially an indicator that they have picked up right ahead of harvest. That’s something I’m really keeping an eye on, trying to understand what’s going on. Okay, what’s August look like? What’s September look like? Is this the return of Argentine soybeans in a big way? And if so, that could — in addition to looking at probably higher production this year in terms of organic soybeans in the U.S. — could mean a lot more supply of organic soybeans. And that could see prices turn around pretty quick if that reality comes to fruition.
Increases in Organic Soybean Meal Imports
TOM: Okay, so that’s kind of the world of the soybean market. How about some of the other big markets that you’re working with?
RYAN: Yeah, the other one, maybe just to kind of beleaguer the soybean point a little bit longer, because when you talk about soybeans — organic soybeans in the U.S. — it’s really two markets. You have soybeans and soybean meal.
TOM: Of course.
RYAN: And if you look at what has occurred within organic soybean meal, it’s a completely different situation. Really, what we’ve seen this past marketing year is a substantial increase in organic soybean meal imports. I’ve presented this information to a few people, and I’ve gotten pushback. And it seems counterintuitive because if you look at what’s happened in the U.S. for organic soybean meal prices — again, maybe in that year-over-year comparison — if we were talking about this at this point last year, you were looking at organic soybean meal that was around $700 – 800 a short ton. Now, it’s going for $1,300 – 1,400 – 1,500 – 1,600 a short ton. And how can you have organic soybean meal prices that have doubled or such over this time period whenever you have record organic soybean meal imports? If we look at where we think U.S. organic soybean meal imports are going to end this past marketing year, we’re looking at about 461,000 short tons, which is up about 35% year over year, in terms of what we’ve imported. It’s a substantial amount of organic soybean meal. If we add that into the equation, one thing I like to do is try to make this picture. Okay, what’s the U.S. organic soy situation, right? If I take soybeans and soybean meal, put them all in a big equivalent bucket, what’s that look like? In terms of overall/total organic soy supply, we’re actually ending this past marketing year with 11% higher supplies if you factor in soybean meal. And that’s due to that influx of organic soybean meal imports.
So how do you have $1,600/short ton soybean meal, $30-plus/bushel organic soybeans, but what is, on paper, a net long organic soy supply situation? Soybeans are down, but soy, overall, is higher. There are all these different, weird things going on within that market that we don’t really have full transparency on, that, ultimately, what they mean is there’s a lot of risk for anyone who’s working within organic soy over this next year. Are we going to see a lot of imports? All these soybean meal imports that we’ve had, they’re likely just sitting and holding. If we look at the behavior that we saw, it looked like it was a lot of forward buying and a lot of, essentially, trying to buy ahead of some rocky organic soybean meal news that we had over the past marketing year. So do we have a lot of supply already in the U.S. that’s in the form of meal? Do we have a lot of beans coming? Are we going to see more meal this next year? We know we’re probably going to have more production. Are we sitting at a critical point where, all of a sudden, we’re going to be in the opposite? We’re going to be swamped in terms of organic soy supply? It’s a huge risk. Maybe not. Maybe we’re going to see these Argentina things cut back off, and maybe the soybean meal will slow down, and this stuff will sit in supply. Maybe we’ll see bean prices supported at $30 a bushel, but it’s usually risky, from my perspective, in terms of what’s going on with actual supply and prices in that whole soybean/soybean meal market.
Organic Corn Prices
TOM: So the other markets, are they kind of sitting in the same place? Or are they completely in a different boat?
RYAN: Yeah, the other big market when you’re looking at organic feed items in the U.S. is, of course, organic corn. And organic corn, in some ways, looks a little bit like the conversation we’ve had about organic soybeans. Over this past year, we had an increase in U.S. production. We had a decline in U.S. imports, and we’ve had an improvement in prices. If we look at where organic corn prices are right now, they’re averaging about $9 per bushel delivered to U.S. organic Corn Belt elevators. And that’s up from about $6.50 per bushel if you were sitting here at this point last year, but the story is actually quite a bit different. If we think about maybe coming at it again from that supply perspective, last year, we had about a 5% increase in U.S. organic corn production. No, I’m sorry. I’m trying to read numbers out of my one eye and speak. About 11% increase in U.S. organic corn production domestically, which added somewhere around 4.5 million bushels to U.S. organic corn supplies. We had imports fall off. They fell by about 37% if you’re looking at whole corn. Cracked corn was up about 10%. But on net, imports were down about 19%. So 11% more domestic production, about a 19% reduction in imports, but imports don’t mean the same thing for organic corn that they do for organic soybeans. If we talk about organic soybeans, somewhere around 78% of our market is in the form of imports. If you’re talking about organic corn over this past marketing year, it’s somewhere around 23%. So what we actually wound up with is, even with that reduction in imports — that 19% reduction in imports — we actually ended the marketing year up about 3% in terms of U.S. organic corn supplies, just because we had higher U.S. production. And if you look at maybe how that correlates back to prices, we’ve got more supply in the U.S., but we’ve seen a rally in prices. Well, we know we’ve had organic livestock production keep up at an accelerated rate over this last year, and so that’s likely going to keep that bottom-line supply situation a little tighter. Then, the other thing that you have to remember is what put us at $6.50 per bushel at this point last year, and it really was an organic corn market that went through 2019 expecting really tight supplies. So they got very aggressive in buying.
So we started this past marketing year in a very long position. So what we’ve seen over this 2021 marketing year is that the long position has evaporated. We’ve substantially cut back on imports, and it’s tightened up that supply situation. And now, we’re sitting in a market that looks potentially more balanced in terms of either being short or long. $9 – 8 per bushel seems to be the steady state, break-even price for organic soybeans. We’re kind of at a natural position in terms of that organic corn price. If we think about what supply might look like and how that might factor into prices as we move forward, we’re looking at an increase in U.S. organic production. I think we’re talking about organic yields, and I’m saying this all before we’ve really started harvesting anything. But looking at the data that we have so far, it looks like yields will be up about 2.5% year over year, looking at what we use at this point as the leading indicator of where acres may go, which is the number of organic operations that have corn certified within their operation, according to the USDA. We’re looking at organic operations that are up about 2% year over year. If you take those two factors, and you kind of stick them together, that means total production based on what we know right now: up 5 – 6% year over year. If we think about, maybe, where imports are trending, we may see them dip a little bit more. We may see them come back up a little bit. I wouldn’t be surprised if we see them fall again. Declining U.S. organic corn imports have kind of been a trend for the past few years. And, really, what the story is there is as a producing country, we continue to get better and better at supplying our needs domestically. Depending on how big that production piece comes out, there may be a little room for an uptick in imports. Likely, if it comes out much better than 5 – 6% year-over-year gain, it’ll probably add some more downward pressure to those imports. Really, I think it’s going to be a matter of the markets going to remain balanced around this $8 – 9 per bushel range, and it’s going to be a factor of what pace imports take to keep the market where it needs to be.
Conventional vs. Organic Commodities
TOM: Okay. So the last time we talked, one of the things that surprised me a little bit is you said that there’s really no correlation between the markets of conventional commodities and organic commodities, right? You can’t say that one is worth 50% more than the other. They are two independent markets?
RYAN: Absolutely. My analogy that I always like to throw out is the steak to ice cream ratio, right? No one ever talks about the steak to ice cream price ratio, even though they both come from cattle. Why? Because they have nothing to do with each other. Their production and demand sides are absolutely separate from each other, and it is production and demand that create price. If we look at the production side, sure, there’s room for some correlation, right? A drought is a drought. A flood is a flood. Good growing conditions are good for both. Bad growing conditions are bad for both. So you see some correlation in terms of productivity in U.S. production. But beyond that, the acres are not interchangeable. It takes three years to transition acreage into organic production. For someone who produces organic, that’s viewed as a pretty substantial capital investment. That’s not something that you just forgo to put in ‘conventional’ this year because you think it’s not worth it. You’ll ride out a down year of organic prices for the up year that comes, just because of the cost of transitioning. And conversely, if you’re a conventional guy, and, all of a sudden, organic shoots up to $10 per bushel, you can’t just jump into that market. It takes three years.
So, from an acreage perspective, they’re completely separated. Then, again, from demand, same thing. You can’t use conventional to feed organic livestock, and you wouldn’t use organic to feed conventional livestock because it’s at such a substantial price premium. And even going into packaged food goods, again, you can’t move the two. If you need a more prominent example of how the market fundamentals are so much different and the pricing realities are different, just look at the fact that when we talk about organic corn and soybeans, really, what we’re concerned about is what’s going on with the import market and how much imports are going to drive U.S. supply in creating U.S. prices. That’s anathema to anyone who works within the conventional sector. During the China trade war days, I had a lot of people asking me how those were going to impact organics. Well, they’re not because China does not import organics from the United States, so that’s not really a factor. It’s a fallacy to think that you can derive one from the other, and it works sometimes, except for when things change. And whenever you need that to work is when things change, and that’s when it falls apart. So it’s a very dangerous strategy to adopt, trying to hedge one off of the other.
Organic Wheat Markets
TOM: So a little more about some of the other commodities you work with: wheat, dairy, canola? What’s happening in other markets?
RYAN: Yeah, we’re in the middle of putting together our updated perspectives on dairy and on some of the oil seeds. Looking at organic wheat, we can kind of drill in a little bit there. And, really, when you look at organic wheat, you can take a lot of the same notes that you can take from the conventional sector. If you look at where organic wheat is produced, a lot of your winter wheat that’s grown is grown in the U.S. Corn Belt, and it’s grown as a cover crop. And it makes it into the feed market. A lot of it makes it into food. But a lot of it makes it into the feed market, and it’s grown as a winter cover crop across the Corn Belt. So, as a result, the winter wheat market, in terms of supply, is kind of held up. What we pulled off this year, the protein levels, they look pretty decent from, essentially, looking at different protein surveys out there. Yields, on a national average, look like they’re going to be down about 1% year over year, but they’re still pretty decent. Overall, the winter wheat crop is probably going to be slightly tighter than we were last year, but quality looks okay and overall supply. We don’t know, again, what acres are going to look like. Doing that same thing, looking at where farms are relative to where they were last year, we have about 5% more organic farms in the U.S. certified for producing organic wheat. So, taking that as a leading indicator of where acres may go, we’re probably looking at more acres. So that’ll help offset that 1% cut.
RYAN: But if we move into our spring wheats and our durums, anybody who is working within that sector right now in the conventional, or in the organic too, can tell you that, really, the story there is drought. Because much like the conventional sector, a lot of it has grown up in the High Plains/Pacific Northwest region. And that part of the country has just had some punishing growing conditions. If we look at where we think maybe our spring wheat yields are going to come in, we’re looking at organic spring wheat yields that are going to average somewhere around $18 per bushel. It’s where we’re projecting them right now, which is down about a third from what we had last year. If you’re looking at durum, durum is also expected to be off. Durum is a little bit protected, though, because a lot of organic durum is actually grown as desert durum down in Arizona. So yields aren’t clipped quite as bad. If you look at what the USDA is calling right now for national average organic durum yields, they’re talking about 24 bushels per acre, which is down about 42% year over year.
RYAN: If we’re looking at what we’re talking about for organics, we’re talking about 45 bushels per acre. We’re likely to see organic durum yields, on a national average, higher than conventional. And that’s because it’s protected by being down in that desert durum area, which really hasn’t seen the same impacts. We’re talking about 7% lower organic durum yields, but nothing like you’re looking at in the conventional sector: tighter supplies overall. The stuff that’s coming out of that High Plains/Pacific Northwest region, the quality seems to be a bit of an issue. We’re looking at some pretty high protein levels, but you start talking about things like falling numbers in some of the kernel sizes and test weights. I think we’re going to see some challenging things there. But yeah, we’re looking at what’s probably going to be a tighter supply position in the U.S., just due to those challenging growing conditions that we’ve had.
Marketing Organic Oils
TOM: And the oils?
RYAN: On the oils, we haven’t finished putting together our perspective on that, unfortunately. I can tell you one thing that we have seen with oils. So, if you’re looking at organic oils in the U.S., you’ve got the soy market. You get organic soybean oil.
RYAN: In that market, as we’ve discussed, crush looks like it’s going to be lower this year. So you’re probably producing less organic soybean oil. So that market’s a little tighter, but we don’t use a lot of organic soybean oil in the U.S. Actually, generally, most of our organic oils are in the form of imports: imported canola or imported sunflower oil. And the reason for that is it kind of boils down to consumer demand. The same consumer that goes in and buys organic cereal, organic packaged snack goods or things like that, they also look for things like soy-free. They try to avoid things like soybean oil in their products. They prefer things like canola and SAP and sunflower. And, really, again, I’m speaking maybe a little bit out of turn because we haven’t finished updating that. I can tell you, through the first half of this year, the pace of organic oil imports — canola and sunflower — were up pretty substantially. But, really, we don’t know what that’s looked like since about — I don’t know — I think the last update we did was back in May. And we knew, through May, they were up pretty well, but I imagine that pace has probably persisted. But we just honestly don’t know. But that’s kind of the paradigm when you look at organic oils in the U.S. It’s largely an import market, and we continue to see it grow as organic consumer packaged demand grows.
Import Trends in the Organic Sector
TOM: Okay, so we’ve covered a lot of territory. Anything that you think the organic farmer would want to know about? Are there other issues that I’m not asking you about?
RYAN: Yeah, I think there’s a lot of different stuff going on right now within the organic sector. There has been a lot of talk of reengaging some of the livestock standards. There are issues in terms of imports from India, both with the USDA’s announcement that they made back in January. Essentially, organic imports from India — and this isn’t just oil seeds; this is everything — are done under what’s called a ‘recognition agreement.’ Basically, we recognize that their standards are consistent with ours. So, if you’re certified through them, you’re certified through us. Well, that came to an end in January, and that kind of was the kickoff of a lot of the turmoil we’ve seen this year. But one thing: with that coming to an end, it didn’t actually start to grow teeth until August of this year. And they may have actually, eventually, pushed that back. I know there was talk about it. But over this next year, that decision, really, is going to start to set in, in terms of what are the main four U.S. imports. And when we think about, again, coming back to soy markets, we talk about 78% of that market is imports. Half of that is soybean meal. Then, about 85 to 90% of that soybean meal is imported from India. That means India supplies somewhere around 40 to 50% of our organic soy. So, if you go, and you start making actions against India — and this is not to speak pro or con for the thing, but just the reality — it creates risk around prices and supply.
RYAN: So that is definitely something to kind of keep your eye on, and I hammered on this a whole bunch early on, how complicated the soy situation is and how much risk there is. Be careful in terms of your marketing decisions around organic soy this year because there’s a lot of risk. Then, you add to that the Organic Soy Processors Association. They put in a petition earlier — I think around March of this year — to put an anti-dumping duty and a countervailing duty against soybean meal imports from India, as well. So that’s another factor that could come in and rock that portion of the market. The import side of soy and the price side of soy are just kind of landmines right now. We don’t know when or where they’re going to go off, if they go off at all. So, anyway, if you’re working in that market, just be careful. That’s my best advice.
Helping Growers Make Better Marketing Decisions
TOM: What a complex world, and it’s hard to imagine all the moving pieces and how you put them together to make decisions.
RYAN: Yeah, that’s really our goal and, really, what it is that I love to do and that we do here at Mercaris and why I advocate things like our farmer program and our different information network. Even with all the things that we’ve talked about, there are still huge holes in the market. Like we’ve talked about with imports, we simply just don’t know what’s going on with Argentine supplies. Without doing things like objective price and trade reporting, you can’t really untangle the knot of: why have soybean prices rallied this year like they have? What’s going on with the supply situation? So, being able to have people who see value in that information and who are willing to join us as data partners and help us put that together, it just helps everyone working in this industry to know more and to be able to make better marketing decisions. I mean, if we would’ve known what was going to happen this year — if I could have told everyone: ‘Hey, hold onto your beans because they’re going to be $30 per bushel by the time you get to the summer’ — they would have laughed at me. Nobody thought that was going to happen.
TOM: That’s right.
RYAN: It’s one of those things that if we don’t have the data to talk about it, we can’t even put parameters around what risks are, let alone try to understand what to do when those risks do pop up.
Participating in Organic Price Surveys
TOM: So, again, if people want to help you with the data collection, where do they go? How do they get signed up for that? How does it happen? Do you send an email out? What does that look like, Ryan?
RYAN: Sure. So we have a variety of different ways that people can contact us. Probably the easiest is just to go directly to our website, mercaris.com. From there, you can navigate to us by communicating with our chatbot or email us directly at firstname.lastname@example.org. Also, I believe my contact information will probably be included on this, so you can contact me directly if you’d like to or any other member of the Mercaris staff. You can speak to us about the different information products that we have to offer. Or if you’re interested in joining one of our information networks, definitely talk about that. The people who do participate with our price survey and with our acreage survey, things like that, it puts them in a position where they can get discounted rates on some of the products and services that we do provide. So there are lots of different incentives there for people who are interested in joining the surveys that we have if they’re also interested in data products.
What Growers Should Know about Organic Commodities
TOM: Great. Thanks, Ryan. So, Ryan, in the last few minutes that we have, I appreciate your time very much. You’ve been a wealth of information. But if you had two minutes with a farmer — you’re in a room with a farmer, and you’re talking about some of the commodities, organic commodities, and giving them information on marketing — after two minutes, what do you want them to know about the next three to six months?
RYAN: This is where I have to have a little bit of hubris anytime I talk to farmers. If you ever want to feel less educated, go speak to a farmer because you realize how little you actually know. Anytime I talk to an organic farmer, and I do stuff like this, I get lots of questions around: ‘What should I do?’ And the simple answer that I have to that is: ‘You know better than anyone what you should do.’ All I can do is tell you the risks that I see out there in the market. I’m a desk guy, right? I sit there, and I read reports. And I look at data, and I can tell you that stuff. If you’re an organic farmer, you’ve got boots on the ground. You know your market, and you know your revenue situation better than anyone. The thing that I always tell farmers is: ‘Know this information, consider this information, but don’t get bogged down and drowned by it.’ You know your operation better than anybody else, and you know what decisions you need to make. You know the good decisions that you need to make better than anyone else to manage your operation. Just continue to keep a level head, make intelligent decisions to make sure that you’re taking care of your operation and don’t let yourself get too bogged down in the risks when it comes to the decision-making. Because when we talk about risks, it is unknown, and we don’t know where they’re going to go. Make the good decisions you already know how to make. Keep yourself informed of what you can know, but don’t let yourself get bogged down in the risks. That’s what I always try to tell farmers. I’m not a crystal ball. You know more than me.
TOM: All right. Thanks, Ryan. So, again, thanks Ryan Koory, Vice President of Economics with Mercaris. Thank you for joining us today, and thanks to the listening audience for tuning into another episode of Organics Unpacked. Please tune in as we release a new episode in upcoming weeks.
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