Where Does My Cover Crop Come From? Part 2.

This article is a continuation of my look into the forage and cover crop seed business.  Part one of this story can be found at Where Does My Cover Crop Come From? Part 1.

Bringing a Product to Market

"For a company to have good success in the small seed sector, which is forage, wildlife and cover crops they really have to have their ear to the ground and understand the market and as it's changing, plan to stay ahead of the change." says Chris McCracken of Local Seed Company. Introducing a new species or variety to the market involves reconciling product demand, geographical adaptability, production logistics and pricing. "It's great to see what a species can do in another geography but then to make that work within our own climate is sometimes challenging," notes Chris. To understand demand and the potential for new species, Chris works with local NRCS and extension agronomists and follows farmer networks to look for up-and-coming crops that could fit into his product portfolio. He will also asses the published data on a new species to see if can work with a region's climate, soils and cropping systems. However, he's still wary of fads that pop up seemingly overnight, "They seem to come and go as the next greatest thing and you find out that people hadn't planted them yet in that region." 

Ultimately, it often comes down intuition and a knowledge of how similar species perform under the same conditions says McCracken, "If you know the species, know the genre you can almost tell, you get a gut feeling where it's going to work." If he feels something has market potential, he will then go to his network of suppliers and see if a species fits into their production system. For Local Seed Company, this means not offering every species and variety under the sun but having a range of products that meets farmers needs based on the desired functions of their cover crops. If he has a species that does not fit into his product lineup he may then work with other retailers on a sideways deal when a customer requests a specialty product.

Bringing a new small seeded product to market next involves picking the right varieties to fall under a certain brand name. Because of supply fluctuations between varieties of a given species, product managers like Chris may use different varieties with the same characteristics such as growth habit, maturity and yield to fit a branded product specific to Local Seed Company. He notes "The issue with just having varieties is you always have production issues. You're always running out." Therefore, a trade named product may be one 'blue tag' variety one year and a different the next as supplies change. While this marketing technique may seem slightly deceptive, it ensures a more consistent supply for retailers and allows for better familiarity of products for the end user, particularly in perennial forages that may not be purchased every year. Conversely, the uniqueness of the small seed supply chain also means that a cover crop species that has many different retailer-branded names may in fact be the same genetic variety and could even be sourced from the same field. Ultimately, farmers need to rely on the knowledge of the product manager to select the correct seed varieties meeting the criteria of a retail-branded product. 

 
New species like sunn hemp pictured here, are heavily researched by cover crop seed managers before being introduced into an area. They want to ensure that a species or variety is adapted to a given area and will perform well. Image credit: Zach Larson

Managing Supply Challenges

Providing an adequate supply can be quite challenging in the cover crop business and tight supplies can quickly affect cover crop pricing. From a production side, farm economics come into play for seed producers just as they do with cash grain operations. Producers not only assess the market demand and production rates and costs between cover crop species, but with other crops as well. For instance, in the Willamette Valley, production acres compete for cover crops, forages and the commercial turf seed market, as well as newer, high margin operations such as hazelnut orchards and vineyards.

While per acre seed production rates in the Willamette Valley are somewhat consistent from year to year, many cover crop species grown in other portions of the world can face greater swings in supply. For instance, small gains sourced from Oklahoma and Kansas and summer annual grasses sourced from West Texas are more susceptible to low production from uncooperative weather. In the case of 2019 small grain production, suppliers may have trouble sourcing seeds from the lower Great Plains, while Canadian seed supply looks promising. 

Once the supply picture starts to take shape, cover crop retailers now must deal with market fluctuations to purchase inventory at a cost at which they can earn a profit. Unlike corn and soybean seed production, where seed companies contract acres with a farmer or grow seed in-house, cover crop seeds are largely purchased on the spot market. Therefore, the role of the seed manager is like that of a grain buyer hoping to lock in prices at market dips. For seed retailers buying from wholesale suppliers, prices can fluctuate rapidly, leaving seed retailers backwards on a product, forcing them to sell at a loss. This was particularity problematic for those sourcing radish seeds in the recent past, as an oversupply of seed led to lower pricing that hurt many sellers with a large inventory on hand. 

Even with the best planning on the part of seed managers, shortages can still occur at the local level. Fortunately, like many facets of agriculture, seed supply is a relationship business and seed companies are willing to work together and help each other when supplies are low. As McCracken explains, "We have pretty good relationships with our competitors. If I'm a little low on something or somebody else is a little heavy on something…we'll call each other and pat each other on the back a little and do some trading." In the end, the famer benefits from this in having their local seed dealer stocked with the products they need, regardless of blips in supply further up the line.

Demand Challenges Abound

"The biggest challenge in the small seed business is forecasting." says McCracken. Predicting demand in the cover crop business is especially challenging as there can be massive shifts in acres planted every year and recommendations from cover crop influencers or government agencies can create high demand for species where there was little the previous year. This contrasts greatly with the commodity crop seed business where companies have a smaller portfolio of seeds and know with a relatively high degree of certainty how much see they need to fill their yearly orders. In the cover crop business, it can be an educated guess at best.

A challenge in predicting demand is that the number of acres of cover crops planted can vary widely from year to year. Wet falls reduce cover crop acreage and in the case of the extremely wet 2019, prevent planning of commodity crop acres resulted in sky-high demand for warm season cover crop species such as millets, sorghum-sudangrass, sunn hemp and cow peas. The demand meant many suppliers were completely out of certain products, as Chris notes "I thought I had twice as much summer annuals as I would ever sell but prevent planting came along and took things down considerably."

Farmers searching for new and exciting cover crops can also drastically increase the demand for a specific species. Relatively speaking, cover crops are still a small part of the overall seed market, with only a small fraction of corn and soybean acres receiving a cover crop nationwide. Therefore, when a new species gains popularity, demand can seemingly double overnight and in some cases, there may be only a few thousand pounds of seed in the entire country. Some recent examples of this include fava beans, flax, phacelia and safflower, species where the total seed supply may not even fill a shipping container. Cover crop prescriptions from conservation agencies can be another means of increasing demand, as when cost share is assigned to planting mixes there may be little leeway to substitute more widely available, inexpensive species for one that is in short supply.

The buying habits of farmers also makes the forecasting of cover crop demand extremely difficult. Unlike corn or soybeans that are often ordered months in advance, purchasing decisions for cover crops are still spur of the moment. Lead time for ordering cover crops is often measured in weeks or even days, leaving suppliers guessing to what products should be in a dealer's stock. "It a challenge to keep our inventory levels where they need to be to fulfill the needs of [the dealers]," notes McCracken. Therefore, suppliers are forced to rapidly (and sometimes expensively) move products from the warehouse to dealers or from one dealer to another. Last-minute buying habits can also be detrimental to end users as they are more likely to not get the species or variety they want. 

 
Ordering habits for cover and forage crops are often more short-sighted than cash crops. Ordering ahead can help to ensure that the right product is at your farm when you need it.  Image credit: Zach Larson

Closing Thoughts

For those that purchase cover crop seed, Chris has a few suggestions, first of which is to source seed from reputable suppliers. He states that established companies know their seed growers well and can trust that the seed they get is weed free and has desirable characteristics for a specific region. Chris warns that off-brand suppliers may be chasing the supply of the market, sourcing seed from brokers where there is little knowledge of where the seed is from or if there are issues with weed seeds, germination, or if the cultivar is a good performer. He notes "There's a lot of seed companies out there that quality is not necessarily their concern."  He also has concern when certain species or mixtures are forced into an area that might not be right, resulting in poor performance from the seed or mixtures having too much or too little of certain species and not providing the desired results. Finally, Chris suggests that farmers plan ahead, consider their rotation in advance and order seed early so they get the right products in timely fashion.

So, the next time that you talk with your cover crop or forage dealer about introducing a new species to your operation, consider what it takes to get that seed to you. It's likely the part of an extremely complex and worldwide supply chain, and despite great pressures of supply and demand the seed you need makes it to your farm in time to go in the ground and work for you.

Special Thanks

I would like to thank Chris McCracken and Corey Chelko of Local Seed Company for taking the time to discuss the cover crop seed business the showcasing their Jersey Shore, PA facility. This article would not have been possible without their contribution and I appreciate their time in making this happen.