Understanding Organic Prices: An Analysis of Organic Price Risk and Premiums

Organic food products are produced without synthetic chemicals, including herbicides, pesticides, and fertilizers. Food grown in organic systems that are certified organic by the United States Department of Agriculture command a price premium, whether it is direct to consumer via farmers markets or in conventional grocery stores. Organic food and food products are representing a relatively larger portion of overall food sales in recent years, and the demand for organic meat has also increased. However, there is a lack of available U.S.-grown organic grains and soybeans to feed the growing number of organic certified livestock to produce organic meat to meet this demand. This shortage results from many factors, yet is primarily due to organic production requirements for significantly more land and operating capital when compared to conventionally grown counterparts. There is a lack of information detailing the relative costs and returns of organic grain production, and, limited understanding of organic premiums. The overall goal of this study is to examine differences in price levels between organic and conventional corn, soybeans, wheat, oats, and barley between 2007 and 2015, as well as factors that may affect the organic premium. For organic grain and soybean producers, study findings reveal that the least risky organic commodities to grow include corn and soybeans, especially if sold in the cash market. However, the author suggests that growers may consider growing wheat, barley, and oats if they have a buyer willing to contract in advance to ensure a premium and reduce price risk. For purchasers of organic grains and soybeans, including major food companies as well as livestock producers, it is recommended they continue to study developments in organic grain supplies as producers continue to consider adoption of organic production methods.