Forage Seed Market Outlook

While much of commodity agriculture has scaled and monetized, there remain a few sectors with just a handful of market participants and minimal transparency. This one looks set to transform.

The purpose of this research report is to analyze and highlight the potential for forage seed prices in the years ahead. The trend towards grazing ruminants and away from feedlots is entrenched in the regenerative agriculture movement, which is being driven by governments and multinational food brands all over the world.

At the same time, the cyclical nature of commodity price cycles would suggest that it won’t be as easy to make money mindlessly producing commodity monocrops over the next 2-3 years. Put another way, creating consistency in cropping sales revenues in 2023 and 2024 will be more important than it was in 2021 and 2022, as will lowering crop input expenses. From a risk management perspective, diversity always makes ecosystems (including farm businesses) stronger, and forage seed market structures are a lot different than commodity crops.

Forage seed prices are in tighter supply than turf grasses for now, and the prices are expected to reflect that same relative supply/demand situation for another few years. Government programs favoring grazing systems will keep demand for pasture seed strong, while inflation trims retail sales and discretionary spending on items like turf grass seeds.

As in all markets China is a huge wild card. Depending on the species, China can be either an importer or an exporter and the volumes traded shift dramatically from one year to the next. That being said, sources that monitor the Chinese economy tend to view the demand dynamics heading into 2023 as relatively bearish. Also bearish is the improved moisture situation across the Prairie growing region, creating a stable outlook for yields in 2023.

It will sound crazy to some in commodity agriculture to point to the possibility for pasturing systems to take off as one of the next big trends for farm profitability, but there are several totally new economic drivers in play now. The lack of familiarity in handling livestock is a limiting factor, to be sure, as grazing integration in cropping was forgotten by the vast majority of farmers two generations ago in Canada. Yet environmental organizations like Ducks Unlimited, ALUS, the Nature Conservancy, and the provincial watershed associations have started moving the needle backwards in time, and faster than people outside the environmental movement seem to appreciate.

The science also shows that properly-managed, rotationally-grazed pastures are the fastest and most impactful fields when it comes to soil health, wildlife habitat, and water management. With ecosystems markets emerging to incentivize landowners in these areas, and for carbon offsets, there will be additional layers of revenue to consider that further favor the economics of growing forage seed in the years to come.

For now, government programs are de-risking and financing the transition. Coming next are food companies and markets for the ecological attributes of adaptive multi-paddock (AMP) grazing systems. The latter is preparing many new programs, which should be in place to pick up any shortfall in transition financing that might occur when the political parties in power change.

For more detail on the specific supply/demand situation for forage and turf grass seeds, keep reading! Thanks to the presenters at the Manitoba Forage Seed Producers Association annual meeting in Winnipeg recently for the information that this research report is based on.

Forage Seed

Government support programs in Canada, the U.S. and Europe are having a significant impact on demand for forage seeds, especially legumes. Pulses seeded into pasture diversify the nutrient content of the forage, and boost plant growth of non-legume plants growing nearby.

Alfalfa seed into Europe and legume-based mixes in western Canada are seeing particularly strong new buying interest. Weather-related production shortfalls in Argentina and Australia are shifting more import demand to Canadian suppliers. European markets require certified seed, which is a three year process, making for a measured supply response from Canada to the increase in demand there.

Forecasts are variable for rainfall and moisture replenishment potential in Argentina currently, but forage seed crops won’t bounce back quickly. Currency volatility and government trade policy uncertainty have introduced additional risks for exporters selling into Argentina. It is unlikely that these issues will be corrected in the short term and that Argentina will remain a net importer of alfalfa seed for some time.

Exports of forage seed products from North America into Europe are complicated by non-GMO policies. ‘Free of brassica in 1500g samples’ is the contamination standard, which is difficult to meet. Policies to allow the sale of seed with a low-level presence (LLP) of genetically modified materials into Europe are not on the table for discussion, despite the lobbying efforts of Canadian exporters.

The approval of Roundup Ready alfalfa varieties is causing headaches for traders in several jurisdictions. The testing and production protocols for market acceptance are said to be confusing, inconsistent, and underdeveloped. U.S. seed supplies are ample but can’t move to Europe because it is all but impossible to find supplies that meet the non-GMO standard.

Common seed is not as tight as certified seed, because its markets are limited to domestic North American channels for the most part. Canada’s retail market as well as Europe and Argentina, two of the main export markets, require certified seed.

Turf Grasses

The turf grass category of seeds had a great market run higher during Covid with many people at home and gardening, and production being challenged. Poor growing conditions, mainly drought, affected several of the world’s production centers, and it was hard to compete to get the acres in the first place due to high commodity prices.

Production rebounded in 2022 in response to the higher pricing environment that was needed to rebuild turf grass supplies in North America. As is commonly the case when acres spike in response to high prices, yields were more variable and quality suffered, because a higher portion of the crop was on marginal land and/or managed by less-experienced growers. High prices also have the effect of curtailing demand, so heading into 2023, there is a carrryin supply of turf grasses, and pressure on prices.

Processors of turf grasses have developed a number of methods for maintaining a relatively even sales pace into retail channels, in light of highly variable production and supply levels. Mixtures can shift to include higher or lower percentages of different species within the grasses and fescues that make up turf grass blends. Coatings are also used on grass seeds at times for various purposes, mostly related to agronomics, but in extremely short circumstances such was 2022, processors used notably more coatings than usual to expand the volume of inventory using less actual seed.

This is a controversial practice with strong arguments on both sides of the debate. Using coatings to extend inventories allows for customer channels to remain open even when seed supplies dry up. Likely this prevents some amount of demand destruction that would otherwise be caused by price spikes. On the other hand, it does seem a bit unfair to the customers and dangerous to the brand to reduce seed counts in bags labeled by volume.

One thing that is certain, is that as supply chain transparency gets cheaper and easier thanks to increasing liquidity and improved technology - as is coming for this sector along with all others in agriculture and food - it will not be as easy for seed, grain, or meat businesses to hide shady practices from consumers as it is today. End use customers will ultimately decide how much they care to enforce the trade-off between price and quality.