Podcasts

War in Ukraine & Global Organic Prices w/ Ryan Koory

Interview with Ryan Koory, Vice President of Economics at Mercaris

Show Notes


How is the Russian invasion of Ukraine impacting organic crop prices? Ryan Koory of Mercaris breaks down the effects of the ongoing conflict, from organic crop shortages to the presence of missile waste material in certified organic acres. Ryan also discusses the current state of the organic market in countries as varied as India, Argentina and Canada.

Learn more about Avé Organics: www.aveorganics.com 

Learn more about Mercaris: www.mercaris.com 

Connect with our guest on LinkedIn

#organicfarming

Podcast Transcription


INTRO: Welcome to Organics Unpacked, a podcast for the business-minded organic grower, where we hear from 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 by Avé Organics, a Wilbur-Ellis company. Here’s our host, Tom Buman.

TOM: Today, I have with me Ryan Koory, Vice President of Economics with Mercaris. So, Ryan, welcome to the show.

RYAN: Thanks, Tom. Thanks for having me on again.

TOM: Absolutely. So, Ryan, this is the third time you’ve been on, and each time prices for organic row crops really, really vary. So where are we today?

RYAN: As we’re looking at just moving into May, we’re looking at a market for organic feed-grade soybeans, where prices delivered to elevators across the U.S. Corn Belt are averaging just a little bit below $40 per bushel. We’re seeing contracts really at 38 to maybe 42, but, on average, just slightly below 40. Then, if you look at where corn is, corn is operating at a little bit bigger spread at the moment relative to corn prices, but you’re looking at somewhere between 10 and $11 per bushel delivered.


Organic Soybean Prices


TOM: So, going back to the soybeans, I assume this is the highest ever we’ve seen for prices for organic soybeans?

RYAN: Indeed. The rate of price gain that we’ve seen over the past year and a half has been pretty phenomenal. If you think back to where we were, say, in September of 2020 — I’ve got to get my calendar year straight, it’s been a couple of them — we were looking at a market where we were afraid soybean prices were going to dip. We were thinking they were going to be around $18 per bushel. Then, starting last year and going through this year now, we’ve seen prices that have more than doubled over the past year and a half. They’ve grown pretty substantially.

TOM: So I’m guessing at that $40 mark, nobody really has soybeans to sell, right?

RYAN: It’s an interesting marketing environment right now when it comes to soybeans. The reason that we’re seeing prices elevate to the level that they are now is a shortage within the market, a shortage of oilseeds in general. But the shortage comes from a loss of organic soybean meal imports. Now, with that shortage, you’re absolutely right. It’s making it a very challenging market to find people who are willing to part with soybeans. There are conversations I’ve had. You can find them in dribs and drabs here in the U.S., but there are not many left. Then, if you look at foreign markets, imports historically have played a pretty large role in filling out the U.S. organic soybean supply picture. And with those markets also, there are challenges, whether you’re looking at the Black Sea Region — the issues with Ukraine and Russia — or you look at the shift in organic trade patterns and policies with India and how that’s impacting the picture. So, both domestically and globally, it’s a challenging situation right now to find organic soybean supplies.


Organic Markets & the Russian Invasion of Ukraine


TOM: So let’s dive into a couple of those regions more in depth. Obviously, we know what’s happening in Russia and Ukraine, but what’s the impact on the organic market? What’s causing things to move there?

RYAN: Looking specifically at the Russia/​Ukraine situation, it hits on a few fronts. Directly, we import a fair amount of organic soybeans and soybean meal from Ukraine and Russia directly. Also, we import things like canola and sunflower, which, in a market in which you have tight soybean supplies, would become substitutes. So, by impacting the ability to import those also, you’re further tightening the overall oilseed picture within the United States, which just adds additional pressure. But maybe taking a step farther and looking beyond their border specifically, it disrupts trade within the whole Black Sea Region. So, when you look at countries like Romania, it makes it more difficult to get sources from there. Then, if you look at somewhere like Turkey, Turkey is one of our largest suppliers. It’s our largest — almost our only — supplier of organic cracked corn, as well as soybean meal and some other products that we import from there. But a lot of the product that gets exported from Turkey isn’t from Turkish grown crops. It’s imported from other Black Sea countries, including Russia and Ukraine, and then processed. We get knock-on effects in terms of having logistics within the Black Sea, in general, be challenged, and then places like Turkey not being able to source throughput to produce the goods that they would generally export to the U.S. So it makes the supply picture from that whole region challenging.


Impacts on Organic Farmers in Ukraine


TOM: Do you have a future view? Is the planting getting done in Ukraine? Is this going to be a one-year issue, assuming that we find some level of peace there? Or is this going to be an ongoing issue?

RYAN: I think, for the current year, it’s as much of a black box as it is for the conventional sector. I was reading something the other day that the anticipation is for about 70% of what Ukraine would normally be planted would get planted this year. In the organic sector, I know anecdotally that a lot of those organic operations are located farther to the east, which puts them more in the path of combat. So you could see additional restrictions on their ability to plant this year. Even if you think beyond planting, it’s a matter of getting it out of the country. A lot of what’s leaving Ukraine right now — not a lot, but virtually anything that can leave Ukraine right now or might be leaving Ukraine later on this year — probably isn’t going out by port. It’s being shipped by a rail and truck into Europe and then out through European ports. So those things aren’t likely to change, and those are bigger impacts that go across agriculture in general. But if we think about organic specifically, we’re in a little bit more of a sensitive situation because it’s not just a matter of being able to get in and plant fields. It’s a matter of being able to get in and certify and plant fields. So, if you are unable to certify your land organic for production this year, whether that be because you have no certifiers to come operate in that space — or perhaps you had combat on your fields, and now you have waste material from missiles and whatever else that are in your field — does that prohibit you from ever becoming certified organic again? 

TOM: Wow. 

RYAN: Then, thinking about this maybe another step, say you were a certified organic producer in Ukraine, and you’ve had to leave. Coming back and restarting and becoming certified organic again, are there greater disincentives to not come back and go back into that production method given all the challenges? It’s a much bigger lift and a much more difficult situation for someone who is certified organic in Ukraine to plant this year — not just this year, but thinking about next year — than it is for anyone else in Ukraine to come in and resume production.

TOM: So, Ryan, when it comes to imports of soybeans that we’re bringing into the U.S., what percent is coming from that region of soybeans?

RYAN: I don’t have that number right off hand. I know it’s not inconsequential. And when you look at imports, we do import a bit of soybeans from there. Argentina is really our largest supplier. Argentina and Canada tend to be our largest suppliers of soybeans, but we do get some soybeans from Turkey, or from Ukraine rather. We also get them from Russia. It’s some of these other things like canola and sunflower, where Ukraine specifically made up about 20% of our imports of canola and sunflower last year. It’s kind of across the whole oilseed complex that it eats into.


India & Organic Soybeans


TOM: So let’s hop someplace else in the world. What’s happening in India with organic soybeans?

RYAN: India is just as challenging but for different reasons. The story of India really begins at the beginning of 2021. The USDA made the announcement that the NOP was ending its recognition agreement with India’s APEDA, which is essentially the regulatory body that oversees organic within India. Now, with that announcement, that announcement didn’t have immediate impacts. When the USDA made that announcement, they essentially provided an 18-month runway for operations within India to recertify. Essentially, so long as you began recertification by July 12th of last year, you had until July 12th of this year to complete recertification. So long as you made those deadlines, you were able to continue to export to the United States. So it didn’t have any immediate impact on the ability for India to export, but that’s not the only factor that occurred. We also had the U.S. OSPA. They went through, with the Department of Commerce, and did an investigation in India. That investigation ultimately determined that soybean meal exports from India were being unfairly subsidized relative to the U.S. market. And the results of that investigation are, essentially, that for the majority of Indian soybean meal exporters, they will be facing a tariff rate of close to 300% for soybean meal that they’ll be exporting to the U.S. 

Then, we also had the situation in which, in October of last year, APEDA — and this was in response to actions by the European Union — the EU blacklisted five organic certifiers out of India due to contamination issues. Well, following the EU’s blacklisting, APEDA went in, and they essentially suspended the certification ability of four operators and gave a full year, one-year suspension to all activity of another. So what that meant was, in the short term, it became very difficult to find certified organic goods to come out of India because of the loss of their certification authority. But also, thinking back to the January announcement in which you had to begin recertification, had you pursued recertification through one of those five certifiers, you were pretty much dead in the water at that point. You would have to pursue a new avenue to find recertification, which now makes it very unlikely that they’ll meet the July 12th deadline of this year. So you add those factors on top of the fact that most of what we export out of India is container, and containers are very challenging to get. And they’re a very expensive way to ship right now. It’s just issues on top of issues on top of issues. For soybean meal specifically, with the tariffs, it’s become very cost-prohibitive to import those into the U.S. But if you think about something like soybeans, which aren’t impacted by those tariffs, it’s just very challenging to find supplies and containers that are able to get out of India to the U.S.

TOM: So, traditionally, how much of our organic soybeans have come out of India?

RYAN: A large amount. Prior to last year, I would say, on average, about 40 to 45% of our organic soy supply was in the form of soybean meal imports from India. It was not an inconsequential amount.


Organic Exports from Argentina


TOM: So, Ryan, we’ve talked about the Black Sea Region. We’ve talked about India. Argentina is another quite big producer, traditionally, of organic soybeans. Where are we there?

RYAN: Yeah, soybeans, as well as corn and canola and sunflower. Really, we’re talking about all four crops being at risk right now. When we think about Argentina, the biggest risk that we have there is drought. They’re experiencing some pretty substantial drought, and there is risk of having reduced yields as a result. Now, I have had conversations with some people who work on the production side in Argentina, on the brokering side, and based on the conversations I’ve had with them, they feel confident that they’ll have sufficient supplies to export this year. But relative to what could have been, given the tight supply market that we have now, any kind of cut in yield just doesn’t help alleviate that supply position. Organics are in a little bit of a protected position with regard to the drought because a lot of the organic production is a little bit to the west and south of Buenos Aires. More of the severe drought conditions are west and north, so it’s a little bit below some of the worst drought. But there are areas that are going to be impacted by drought. 

So, when we think about what Argentina will look like next year, it’s a question of how much yield impact are we going to get as a result of this drought versus what kind of acreage expansion are we going to be getting this year? The other thing with the drought is this is year two. They had a drought last year, and last year we saw a pretty substantial cut in their exports. So, really, we’re hoping for a recovery this year, more than just growth but a recovery. It’s to be determined. We won’t really start to see what that looks like until we get into around July and August. That’s when the pace of imports from Latin America tends to pick up counter cyclical harvest periods. It’s a big risk, not necessarily for the rest of this marketing year, because, again, those supplies won’t really show up until we get close to harvest. But it’s really a question for this next marketing year.


Organic Supply from Canada


TOM: So are there any other places around the world that we should be thinking about, especially when we’re talking about soybean markets? What are the other places that we need to be aware of?

RYAN: The next biggest market is really Canada. And if you look at Canada over this past year, we’ve had a substantial 200% more increase in our imports of pretty much all organic goods from Canada. Corn is up, soybeans are up, soybean meal is up. That’s been good. That’s definitely helped alleviate some of the supply position in the United States. It’s a question of how much can Canada ramp up acres again next year? We’re not looking just for all of this to stay the same, but we need some growth from imports next year to keep the market from tightening further. When we think about Canada, I’ve had some conversations with individuals who work on the brokerage side or who work on the elevator side in Canada. And in those markets, they’re having challenges trying to find people to sign new crop contracts for this year. It’s kind of a combination of elevated conventional prices, and that’s pulled some people back into the conventional sector. Whenever conventional prices are where they’re at, you’re looking at $17 U.S. for soybeans. I think, Tom, you said somewhere around $7 for conventional corn. That’s a very profitable prospect in the conventional sector, and it creates an incentive for individuals who are in organics for the profit incentive to abandon that method of production. 

Then, the other part of why it’s difficult to find contracts right now for new crop delivery is, in the organic space, there’s a lot of risk around where prices are going to be. If you think about what happened last year, anybody who signed new crop contracts early, back when soybean prices were knocking on $30 per bushel, we were sitting around 25, 26, almost 30. And oh my gosh, people were locking their contracts. You get around to harvest, and then, by December, they’re hitting around 35, 38. There’s a lot of risk around where prices will be this harvest, and so that’s creating a lot of incentive on the grower side of the market to delay signing contracts for new crop delivery. So it’s kind of hard to gauge exactly what their supply picture will look like. And again, coming back to, We’re not just looking for sustain, but we’re looking for growth in imports.’ It’s a matter of finding markets where that’s possible, and it’s questionable how much Canada will be able to expand its production and how much it’ll be able to expand its exports to the U.S. next year.


US Response to Organic Crop Shortages


TOM: So, Ryan, somebody kind of new to organics and is listening may think, Wow, I’ll just get into organics.’ But as we’ve talked, you’ve had the three-year certification, where you have to go, and then it’s hard. You have to get into a rotation, and it’s hard to just kind of change. But how much flexibility is there in the U.S. to respond to the shortage of organic grains and oils?

RYAN: There’s a bit, not as much as you can in the conventional sector, as you alluded to. You have things like rotations that you are beholden to because crop rotation is one of your principle tools for managing soil fertility and pest management. So, in the near term, you can deviate from rotations a bit, right? I’ve had conversations with growers who are definitely looking at doing a soybean-on-soybean rotation. They did soybeans last year. They’re looking at doing some kind of cover over the winter, whether it be vetch or rye or something that they crimp down and have a biological mat they can use for weed suppression, and then put soybeans in again this year. Maybe indirectly answering that question, one of the things that we’ve been trying to ascertain is just what kind of impact are we going to have on soybean acres due to these prices? In the organic space, we don’t have all the nice convenient tools that the USDA provides, right? We don’t have a prospective planting report. We don’t have an actual planting report. To try to get a sense of where that number is going this year, the exercise that we performed is we called up and spoke with people who work in organic seed sales. And speaking with those individuals, what they indicated is it sounds like about a 20% increase in soybean acres is not out of the range of possibility this year. 

Some of the people we spoke to mentioned numbers as high as 40%, but I would say that’s more of a deviation than the norm. Say we get a 20% expansion in acres. Last year, we hit a 19% percent expansion in acres. So another 20%? That’s growth on growth, and so those are pretty robust acreage expansion numbers. But the question becomes, say you pull that off, where those acres are going to come in, there are going to be places where they weren’t normally planned on being in an organic rotation. Or there’ll be places where soybeans weren’t profitable when they were $18 per bushel. So what that means is you’re going to be disrupting rotations, which means you’re going to be having more weed issues and fertility issues, and that’s likely to impact yields. Also, if you are putting these in fallow acres or pasture acres, places where maybe you didn’t think you would get as good a bank for your buck, maybe you thought you would only get 25 bushels per acre or 20 bushels per acre for soybeans. So at $18 a bushel doesn’t make sense. At $40 a bushel, it does. These things expand acres, but they do it at the cost of yield. So, even if we do pull off a 20%-30% expansion in acres this year, because we’re limited in terms of our fertility and our pest management, it’s likely to come at the impact of yields pretty substantially. So we’re not likely to materialize that full gain of production from that acreage expansion.


Organic Corn Prices


TOM: So, on some of the other things, where are we at? Obviously, there is quite a margin between your typical commercial soybeans and organic soybeans. Not quite as much as corn. Is there a reason for that? Or are we hitting corn?

RYAN: There are a lot of reasons for it. The axiom that I like to think about when we think about conventional organic prices and the spread between the two of them, the thing I like to say is it makes about as much sense as thinking about the steak to ice cream price ratio. Yes, they both come from cattle. They are not related. They have fundamentally different supply and demand fundamentals, and they operate differently. Organic acres are organic acres, and they’re not fungible with conventional. So, from a production perspective, they’re decoupled. From a demand side, you can’t use conventional crops to feed organic livestock, and you’re not going to sell organic crops to feed conventional livestock because you’ll lose your price premium. 

TOM: Right.

RYAN: They have their own things. The premium between conventional and organic is driven by the unique things happening in those separate markets not based on some fundamental relationship between the two. Now, with that, what that means is whatever’s going on in these distinct markets allows the margins to change. So, if you’re comparing conventional soybeans to organic soybeans right now, if you look at conventional soybeans, a lot of what’s leading to the escalation in price — and we’re having knock-on effects from Ukraine, but it began before that — we’re having a global tightening supply on oilseeds and particularly vegetable oils. I was reading the other day that Malaysia is banning the export of palm oil. Global vegetable oil supplies are very tight, and there’s protectionism around it. And that’s escalating soybean prices. If you look at organic, it is a U.S. tight market. We are the primary consumer of this good globally. And with the loss of India as a trade partner and then the onset of these other issues, the U.S. market is just very tight. It’s U.S.-centric, and so that’s why soybean prices are up. They’re both up for their own reasons. Similarly, if you look at corn, conventional corn is up because conventional prices tend to follow with each other because you have acreage substitution, and then you have all the other things. If you look at organic corn, organic corn is a bit of an anathema right now. It appears that a lot of the reason why organic corn prices are at $11 per bushel is there’s a lot of risk in the market. If you look at organic corn right now, from just a fundamental perspective, in terms of organic corn supplies, we’re on pace to have a record amount of organic corn in the United States. 


Carryover Corn Crop


RYAN: In terms of what we would normally anticipate for use, which is about 58 million bushels, we’re already beyond that, and we still have the rest of this marketing year that we’ll continue to import. So we’re going to have a lot of corn as carryover this year, and that’s pretty much a given at this point. The reason that it appears that corn prices are staying elevated despite the fact that we have heavy carryover is, number one, there is risk around this year’s crop, right? There is the possibility that we will lose acres to soybeans and that the U.S. production will fall as a result. There’s also a little bit of risk around yield. If you look at what’s gone on with anhydrous fertilizer prices and fertilizer prices, in general, in the conventional sector, that’s bled into the organic sector. What’s occurred is a lot of conventional farmers are now turning to manure to provide nitrogen for their corn crop. Well, that manure is pretty much the primary source of nitrogen for producing organic corn. Talking to organic growers, I’ve had multiple conversations where there are growers who are either reducing application rates or are afraid they’re not going to be able to apply at all this year because they can’t get manure supplies and manure prices are up. From a domestic perspective, there’s risk of both yields and acres being off, so there’s potential retraction in U.S. production. Then, thinking about foreign markets, a lot of those same things we talked about touch corn. The ability of Turkey to send us cracked corn because they ship us a lot of cracked corn, the ability of Argentina to ship us corn if they have a drought. Those things are important to U.S. supply. So we’re rolling out of this year with a lot of carryover stock. And there are a lot of people who are sitting on their hands right now when it comes to being willing to market their new crop corn because there are high soybean prices in the organic sector and there is risk to supply. But that builds a lot of risk for next year too, right? 

If you roll out of this year with a heavy carryover and these factors don’t occur or don’t occur to a large degree, you wind up with a situation that looks like 2019. If you can think back to what happened over the 2019 planting season, we were abysmally wet, a little bit like this year. We were actually wetter. This year, I think we’re just more cold. But we were abysmally wet, and that had some pretty substantial impacts on planting delays in acreage. And there was an anticipation that the U.S. corn crop was going to be much lower year over year. Built around that anticipation, there were heavy imports. We started importing a lot of corn, and there was a lot of protectionism around contracting prices. Once we got to harvest, the harvest was only down about 1%. It didn’t fall as much as anticipated, and we had a lot of corn that got carried into the 19 – 20 marketing year. Subsequently, prices sank to $6 a bushel. It took us almost two years to get corn back up to about 8.50, $9 a bushel before we worked through that long position. It can happen. It has happened before. The market has over-prepared for shortness that did not materialize, and the market went long. There’s a lot of risk around supply, and that’s leading to prices being elevated and people building carryover stocks. But risk isn’t a certainty. And if those risks don’t play out as anticipated, there’s a chance this corn market goes very short next year, and that would reduce the margin between conventional and organic by itself. And it would increase the margin between organic beans and organic corn. All of these things are moving due to their own levers. They’re related, but they’re not linked. This isn’t a train. One doesn’t pull one. They are their own individual beasts. They have their own realities and their own risks, and they’re going to move in unique directions. And making your plans based around things going in the same direction is a pretty risky prospect right now, particularly given how many risk factors are in the market. 


Current Risks in Soybean & Corn Markets


TOM: So it seems to me, if I’m in the soybean market, there’s probably not a lot of risk. There’s just a shortage of soybeans. But in the corn market, there’s a lot of risk but not necessarily a shortage.

RYAN: To kind of put parameters around the risk within soybeans, we’re very likely to see prices remain elevated, probably around above $30 per bushel for the next year to two. It’s hard to come up with a reality in which we’ll find enough oilseeds over the next two years to bring prices below that. The risk there is does it go to 50? If I lock in a contract right now for, say, $38 for new crop delivery, by December, it’s 50? I’ve lost. So that’s your risk. They’re profitable pretty much at any point, but it’s a matter of how profitable. 

TOM: Right. 

RYAN: Corn, on the other hand? It’s very profitable right now, and there are reasons to think that corn prices remain elevated. But there’s a lot of downside risk. I think the risks of corn going higher — $12, $13 a bushel — are pretty reduced. We have a lot of corn, and we’ve been very successful at sourcing corn and producing corn domestically. Will prices stay around the 10 to $11 per bushel range? You can make a very plausible case for that, for sure. Will they sink down to $7, $8, potentially less, by the time we get to next winter? You could also make a very plausible case for that. I think, when you look at corn, it’s more of a downside risk situation. Whereas soybeans, if you look at that, it’s more of an upside risk situation.


Organic Wheat Prices


TOM: So what can you share on wheat prices?

RYAN: Wheat is in a very challenging position, and it’s really due to drought. We’re in year two of what is a pretty substantial drought, not just here in the U.S., but in Canada, as well. If you kind of look at how wheat is handled, a lot of it’s forward contracted. If you are a flour producer, you need to forward contract that wheat because you need throughput. Then you do some spot in the middle to kind of make blending specs. If we look at what wheat did last year, spring wheat and durum wheat, they were both pretty abysmal. We had a cut in yields, spring wheat yields. We estimate organic spring wheat yields were down about 35% year over year. And durum wheat yields, I think, were down about 7% due to drought situations. Those droughts are still very much there. The one thing that kind of buoyed last year a little bit is winter wheat yields were actually up a touch. And that’s because this drought didn’t really start setting in until we got into late winter/​spring. So a lot of your winter wheat had already set up and was doing okay before the drought got to its worst, and so we had a decent winter wheat crop. This year, that same winter wheat crop is now facing the same drought that cut the spring and durum wheat production last year. It doesn’t appear that we’ll have the buoy of winter wheat also being good or being uniquely good. It seems like it’ll also potentially be worse. 

So, if we look at the prospects right now, given weather and given drought conditions, the quality of the wheat, from what I understand, last year was actually relatively decent. Dry grain tends to have a higher protein content. It was just $15 a bushel of wheat isn’t good to you if you don’t have any of it to sell. It’s kind of what it comes down to. That’s the biggest risk right there. We know that both us and Canada, in places that are key organic meat-producing regions, are continuing to experience some pretty substantial droughts. And with those, it seems very unlikely that we’ll see recovering yields this year. We’ve got a lot of this year left. Things can change in a hurry. But as they sit now, it seems like there is a lot of risk for U.S. organic wheat production to tighten further this year. And that’s likely just to make the U.S. organic wheat situation more challenging.


Organic Prices for Feed Operations


TOM: So, Ryan, we spent a lot of time talking about the producer’s end, but what about the buyer’s end? Where are they in the organic world of using organic corn, beans and wheat? Do we see more use of these products? Are they stable? Are they going down?

RYAN: If you’re looking at it from a feed-operation perspective, it really is a very challenging thing to navigate right now. All those price risks that we talked about, that’s really the question that they’re trying to answer at this moment. If you think about it, the paradigm that you have to navigate is do I eat short-term costs to hold onto long-term market share? If this thing breaks after this year and commodity prices come back down, and I’m back in a more profitable range, I’ll eat the short-term loss. If this is a two or three-year situation, then it becomes a different situation because now those costs aren’t short term. They’re long term. And the industry really is in a moment of, right now, trying to ascertain what those risks are and what that price outlook is and trying to plan around it. And even if you want to take this conversation a step broader beyond just feed costs, from a macroeconomic perspective, things are a little precarious in the U.S. and globally right now. We are in a period where inflation is escalating and looks like it’s likely to escalate over the next year to two years. Inflation has a reducing impact on incomes. It shrinks incomes in a real sense. 

So organic goods, though they’re at a reduced premium to what they were, maybe, in 2009 — the last time we had a recession — they are still premium goods. And whenever you take a consumer’s checkbook and you reduce the size of it, they have to make different purchasing decisions. They have to start considering things like potentially cutting premium goods out of their budget. So it really is a question of what’s the input side going to do and what is the consumer demand side going to do? How much a higher feed cost can I pass on to consumers? How much can I eat internally? How long can I do that? I don’t have a real answer for your question because, unfortunately, the way the market is sitting right now, no one has great answers. It’s just figuring out each piece of risk at a time and trying to do your best. But yeah, the feed-operation side of this industry is very much trying to understand these different risks and trying to plan around them. It’s very feasible. If we see soybean prices, say, stay above $35 — the 35 to $40 per bushel range for the next year — that translates into meal prices that are somewhere in the 16 to $1,700 per short ton. That has a huge impact on turkey producers. That’s nearly a doubling of their production costs. It’s hard to imagine a scenario in which that doesn’t either A) reduce inventories or B) become higher prices or C) both. So, in that context, that makes for some challenging conversations.


Outlook for US Organic Growers


TOM: There does seem to be a lot of risk in the market. So I don’t know if you’re willing to answer this, but if you had 1,000 acres, are you going all organic? Or are you going commercial? Or what are you going to do?

RYAN: I still believe, regardless of the short-term disturbances that we have within these markets, as a long-term prospect, organic is a good way to go. If anything, you could probably make the case that despite the fact that conventional prices are higher, now is a good time to convert. If you think about the yield losses that you generally sustain going through the organic transition, those yield losses are going to be mitigated by higher conventional prices. Those acres will remain profitable because of higher conventional prices despite the yield loss. So this actually, in some ways, makes it an easier period to transition into organic.

TOM: Well, Ryan, I really appreciate you getting on today. You are a wealth of information, even though it can be confusing at times, right? But I really appreciate you getting on and just kind of talking about where the markets are. If you had to put a two-minute synopsis on organic growers in the U.S., what are they looking at over the next year or two? What would you tell somebody sitting at a coffee table?

RYAN: I’m an economist, so I’m a numbers-and-spreadsheet guy. I don’t have to make real-world decisions, and I’m very thankful for that given the current context of the market. However, I think, right now, it’s very easy to lock in profitability as an organic farmer. Commodity prices are good, and there are a lot of people who are interested in making forward contracting decisions from a buyer’s side. Now, making those decisions comes at the cost of future liquidity with regard to your crop and your ability to market it differently if the market turns out differently. In situations like this, which are fraught with risk, a good strategy is always to lock in yourself. Protect yourself against those risks to whatever degree you feel comfortable and, to whatever degree you’re able to, try to take advantage of whatever price swings occur within the market. First and foremost, protect yourself against the downside risks because those can very quickly come in and disrupt your business. And leave yourself some room to maybe capitalize on upside risks if they materialize. Now, I always say that farmers, in general, are very intelligent small-business people, and no one’s going to know better than them what is the best strategy for production and marketing on their farm. So they already know what decision they need to make, and it’s just a matter of going out and executing those decisions and making the best choices you can for your operation.

TOM: Well, again, Ryan, thank you very much. Ryan Koory, Vice President of Economics for Mercaris, thanks for your insight.

OUTRO: Thank you for listening to Organics Unpacked. If you enjoyed this episode, please consider subscribing and giving this show a five-star rating and review, so we can continue to help organic growers improve their operations.