Around the existing value chain for certified organic, there are a
number of new tiers emerging in the markets for premium/sustainable foods, including non-GMO, pesticide and spray-free, regenerative organic and transition organic.
Any of these could replace the overused term 'natural', with a label claim that means something. Outside of Canada, some of these are already well-established. For example in Europe there are label claims on foods around biodynamic, pesticide-free and others that all mean something slightly different than organic and must prove unique protocols in production and origination.
Over time, at Sustainable Grain we hope to help define farm-by-farm which value chain the style of production is going to fit best into, and then help to build and match up all the links in the chain. For now, it is safe to plan for more rather than less label claims and associated value chains to emerge. All of them will be more restrictive than current conventional grain production allowances. They may or may not offer price premiums; at times, new rules and restrictions around growing and selling food crops will be required to maintain access to the market.
At this time, we are making progress in finding markets for durum and yellow peas produced in the period during which a farm is transitioning towards certified organic. The buyers are willing to pay premium prices of varying amounts. In most cases, the value-add is derived by virtue of being able to call these crops pesticide or spray-free.
It’s unclear and inconsistent who is going to pay for the residue tests necessary to market crops as ‘pesticide-free’. Potentially more of a concern than the cost of the testing, however, is the fact that crops may carry pesticide residues even when they weren’t sprayed. Our hope is that transition-organic markets will emerge that rely on a simple affidavit from the farms, and/or the pre-certification paperwork provided by some organic certifying agencies.
Under this regime, our expectation is that affidavits would come with little to no premium, while tested and proven pesticide-free grain would be worth the most, potentially as much as organic. In our discussions with buyers and farmers, rough indications of prices mid-point between conventional and organic have been suggested for pesticide-free, and $10/t for spray-free affidavits, but little to no grain has traded yet under these specifications.
The spreads are highly volatile, but on average, organic grain typically trades at two or three times over conventional prices for the same crops. Regenerative organic, once it’s an approved label claim, will most likely trade at a premium to certified organic. Transition organic labeling is also allowed and currently being piloted by Kellogg's/Kashi.
Organic Feed Grain Market Analysis
Current prices for organic feed wheat are higher compared to last summer, due to the delay in harvest and tight old-crop ending stocks. Farmer selling is likely to increase in the weeks ahead.
Organic feed wheat prices have been climbing, with up to $10/bu now bid fob farm in Saskatchewan. With harvest progress having been stalled by recent wet, cold weather, supplies have grown tight and end users have been forced to pay up. If and when conditions improve, it’s possible that farmer selling of feed-grade wheat picks up considerably, depending on how much wheat was downgraded from sitting in the field.
Organic feed barley prices are currently $6.50-7/bu depending on location. Barley is normally worth less than wheat in livestock feed rations, but not by this much. A certain amount of feed wheat is required in poultry rations, but other types of livestock can substitute wheat for other grains, which may encourage buyers to switch out of wheat into barley once their wheat requirements are covered.
Corn has a major influence on the prices of alternative feedgrains, but there isn’t much of it grown in western Canada. In the U.S., corn prices have come under harvest pressure following a decent growing season. U.S. corn harvest progress is currently ahead of last year at this time. Prices have dropped from last summer’s peak of US$12.50/bu for organic corn, down to US$9.50/bu (fob a U.S. farm) today.
U.S. feed wheat offers are at US$8.60/bu. Milling quality winter wheat is US$11-12/bu, as long as the protein is decent. Protein premiums should remain firm in the organic wheat complex through 2018/19 and supplies are likely to grow tight again heading into the latter part of the year. The U.S. market will pull Canadian-origin organic wheat south, and it’s unlikely that organic corn will flow up into the Prairies.
About Sustainable Grain
Why Regenerative Organic?
We very often get asked what regenerative agriculture is, and our answer reflects the focus of Sustainable Grain on business and market development. Regenerative farming systems restore healthy populations of natural helpful biology and balanced chemistry to the soil, which we believe translates into more nutritious food crops. The basic definition of organic food crops is that they were produced without the use of chemical fertilizers and pesticides.
Modern consumers clearly want their foods to be safe and nutritious, and the environment they’re grown in to be in tune with Mother Nature. Regenerative organic offers a perfect blend of systems, protocols and quality attributes that consumers want, and for that reason, our primary focus is on encouraging, identifying and supporting this type of food crop production.
Many farmers struggle with the decision to convert to certified organic, as it is daunting from a cash flow and agronomy perspective. It appears to become less so once regenerative techniques are deployed, but that takes time. The price premiums will make it worthwhile for many farms, but they may still struggle with the stigma around organic.
The notion of a negative stigma around organic farming is completely at odds with consumer trends, and market spreads demonstrate that. Regenerative farming techniques such as inter-cropping and cover crops clearly work to restore soil health, for organic and conventional farmers alike, so there’s nothing to argue about. The media coverage and growing public awareness of pesticide residues being present in foods will only encourage more buy-in to the organic protocol that bans it, which is why the organic consumer segment in food markets is likely to continue its current growth trajectory long into the future.