SAINT PAUL, Minn. – With corn selling in the $3 per bushel range and soybeans around $8 per bushel, many growers might be eyeing the organic markets. Prices are promising in the organic grain markets, but the transition challenges are many. The decision to go organic should not be made lightly.
“It takes a three-year commitment on the part of grain producers and one year for livestock producers,” said Gigi DiGiacomo, research fellow with the Department of Applied Economics at the University of Minnesota. “I think you have to go into organic for the right reasons, the decision to transition cannot simply be price motivated.”
As of the Dec. 5 USDA National Organic Grain and Feedstuff report, organic, feed grade corn is priced on average at $9.43 per bushel. Feed grade soybeans are at $18.63.
“In the past a lot of folks have started transitioning, then dropped out when conventional prices popped up,” DiGiacomo said.
A common mistake among growers who begin transitioning to organic is not properly preparing for the three-year transition period. During this time, it is common for yields to be reduced due to changes in management practices.
“For grain producers, the first year, you have the residual effect of the chemicals that have been previously applied, so you don't have a really big issue with weeds at that point, your yields are still pretty decent,” she said. “But, by the second and third year, usually you start to see a pretty significant yield hit.”
This is kind of the hidden cost of organic transition that growers fail to prepare for. Not only can yield drop, the grain is still considered transitional. It cannot yet be sold in the organic markets where the prices would mitigate the lower yields. Most producers are only getting a conventional market price for it or a slight premium if they take the extra time to market crops as GMO-free.
“We strongly encourage folks put together a business plan for the transition period,” DiGiacomo said, “to map out what cashflow is going to look like during that transition and to do a thorough job estimating profitability under different transition and organic certification scenarios.”
DiGiacomo co-authored the book “Organic Transition, a Business Planner for Farmers, Ranchers and Food Entrepreneurs.”
It is important for growers to account for the reduced yield at regular market price as they plan their transition, she reiterated.
They really need three business plans if they want a successful transition. This includes the current, conventional crop business plan, the transitional crop plan and the final organic business plan. Growers need to look at how the financials from all three plans line up over the next five years to see if the transition will be financially successful.
“A lot of growers will do a partial or a gradual transition, where they, rather than transitioning all of their land at once, just transition a portion of it,” she said. “That way they have some conventional land that they are still profitable on to help offset any losses incurred on transitioning land.”
Some growers will raise alfalfa on their transitional land as a way of getting through the three-year period.
“It is a great way to handle the weeds and to start improving soil organic matter during the transition period,” she said.
There are also fewer input costs associated with alfalfa production, which can help make the transition more affordable to the grower.
DiGiacomo also suggests paying careful attention to the timing of your transition. “Rather than initiating transition in the spring, if you can initiate transition in the fall,” she said. “By not apply any chemicals in the fall, you would still be harvesting a conventional crop that fall, but it's technically your first year of transition.”
Three years later, that fall harvest is an organic crop.
“If you started your transition in spring or summer, you have to wait, that third year of harvest is still going to be considered transitional,” she said.
There are many resources available to growers looking to plan an organic transition. Growers can contact the University of Minnesota for assistance. There is also a website, eorganic.info, that has many tools to help growers’ transition to organic production.
“We do know that once you get through the transition period and once you are able to take advantage of those premiums, that organic growers are very competitive financially with non-organic growers,” she said.