Top Crop Manager

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Risk and return through OPs

Despite hybrid introduction, many growers still prefer certified open-pollinated canola.


November 29, 2007
By Top Crop Manager

Topics

In 2005, open-pollinated canola seed accounted for over 50 percent of the total
canola seed market and over 25 percent of the Roundup Ready seed market in the
western Canada market. Given the developing yield benefits that hybrid canola
promises, there is still widespread support for certified open-pollinated canola
which suggests the question: who is buying and why?

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"Don't write the obituary for open-pollinated canola yet,"
says Harley House.

"The obituary for open-pollinated canola has been written for the past
several years, but it refuses to go quietly," says Harley House, vice-president
of retail for Winnipeg-based Brett-Young Seeds. The company markets a line of
popular open-pollinated canolas under its Libred brand, and will begin selling
Libred Hibred brand hybrids in 2006.

"Some thinking would say that everyone should go to hybrids," says
House. "We expect that over time this will largely happen, but the market
is telling us that certified open-pollinated is still running strong."

In his view, many producers value the steady reliable performance of certified
open-pollinated canola seed. They consider the general perception of lower yield
potential to be a fair trade-off, given the difference in seed cost. The top-selling
Libred canola, LBD612RR, sells for approximately $10 to $12 per acre less than
most hybrids.

House believes that producers are also engaging in risk and return management
by what investors would term diversification by asset class, an approach he
believes is reasonable. It is only prudent business to control what you can
and have a diversified portfolio as hedge against commodity market prices and
environment which largely cannot be controlled by the producer.

"Think of it this way: in the long-run, stocks are very likely to outperform
bonds," says House. "While that's likely to be true in the long-run,
stocks won't necessarily outperform bonds in any given year. Investors should
have both, and many growers want to plant both hybrids and certified open-pollinated
canola seed."

Open-pollinated hedges what-ifs
Can't we all get along? That is a question Brian Nadeau asks as he considers
the back-and-forth marketing claims of open-pollinated and hybrid canola seed.
He sells both, grows both and believes farmers could profit by doing the same.

"Part of it is the cost. There's a roughly $10 to $12 per acre difference
in seed cost," says Nadeau, a seed grower near Fannystelle, Manitoba. His
operation runs to 3000 acres, of which 70 percent is for seed production and
the balance for commercial crops. In 2005, he grew canola, soybeans, flax, canaryseed,
oats, wheat, alfalfa and ryegrass.

"There's open-pollinated canolas out there with vigorous genetics that
compete closely with hybrids. Hybrids can also be very finicky and area- specific.
Even with hybrids available, it makes no sense to take open-pollinated and just
throw them out the window."

From a dollar-in, dollar-out perspective, based on their higher yield potential,
Nadeau believes hybrids can have the edge. Some years, though, it is a lot easier
to put a dollar into a crop than to get a dollar out of it. Under optimum moisture,
weed control and fertilization, hybrids perform well but especially moisture
(both excess and drought plus frost and other weather related risks) are factors
that can quickly equalize yield potential between hybrids and OPs.

For every extra dollar he invests, on seed or any other input, Nadeau wants
to get at least two dollars in extra revenue. For an additional $10 in seed
cost, he wants $20 in extra yield. At $6 per bushel canola, call it three to
four bushels. That math favours hybrids usually, but not always.

"In the Red River Valley, there are a lot of hybrids and for good reason,"
says Nadeau, "because you can give them the inputs, know they'll have moisture
and yield will follow. That's not the case in a lot of areas. If you hit a home
run, if all the weather and growing conditions co-operate, hybrids will yield
very well for you. But I think it makes sense to manage the downside, too."

Most places. Not here
In Chris Bettschen's trading area, you will find a lot of nice looking open-pollinated
canola crops, along with a certain reluctance to adopt hybrids completely.

"There's still a case for open- pollinated canola in some areas,"
says Bettschen, with KARE Ag Services in Radisson, Saskatchewan. "They
have a place in areas with lower-than-average yield potential caused by weather
and moisture constraints."

In parts of Bettschen's area, the maximum canola yield is about 35 bushels
per acre. The three to four bushel cushion that hybrids need to justify their
extra cost might be attainable, he says. However, the yield advantage is not
consistent enough.

Longer-term, these observers agree that hybrids will carry the day. On the
evidence, however, that day is not yet in sight.

Says Bettschen: "With the continued increase in yield potential of hybrids,
we should be getting 100 bushels per acre one of these days, and you don't see
that. Unless hybrids can continue to deliver higher yields, some farmers will
still see a role for open-pollinated canola."

Risk and input cost management through certified open-pollinated canola is
prudent business.