Pricing standing corn for silage harvest in 2011

By Dianne Shoemaker, Bill Weiss and Normand St-Peirre, Ohio State University Extension

 

How to price corn for silage as a crop standing in the field is a perennially challenging question. The optimal answer will vary depending on your point of view. Are you buying or are you selling?

This corn silage pricing discussion is based on a corn crop standing in the field. The owner’s goal is to recover the cost of producing and harvesting the crop plus a profit margin. Their base price would be the price they could receive for the crop from the grain market less harvesting/drying/storage costs. Hopefully, this would meet their goal of covering production costs and generating a profit. During price negotiations, it should also be recognized that harvest risk is also being shifted from the grower to the buyer.

To the grain farmer, the corn crop may have some value beyond the income from the sale of grain. If the crop is sold as silage, the corn fodder is no longer available as ground cover and/or as a source of some nutrients and organic matter. This creates a potential opportunity for the dairy farm to provide nutrients and organic matter back to the corn fields from subsequent manure nutrient applications.

 

Valuing the standing crop



To look at the value of the corn as silage, we can estimate that a ton of corn silage, on average, contains ~7 bushels of corn. If corn is worth $6 per bushel, then the standing corn for silage would be worth about $42 per ton before the cost of harvesting for grain. If we estimate a grain harvest (combining, hauling, storing and some drying) cost of ~$40 per acre, then the corn silage is valued at $39 and $40 per ton (depending on yield). This year, corn prices are highly variable. Estimating the same $40 per acre harvesting costs, standing corn for silage would be worth $32 to $33 per ton, if corn is worth $5 per bushel; $46 to $47 per ton if corn is worth $7 per bushel; and $53 to $54 per ton if corn is worth $8 per bushel. This is a starting point, additional adjustments must be made.

 

Adjusting for dry matter

The values discussed above are for corn silage at 35% dry matter. Prices also have to be adjusted for different dry matter concentrations. If actual dry matter was 30%, then the value is about $34/ton (i.e., 30/35 = 0.85 x $40/ton). Corn chopped at more than about 38% DM or less than about 30% DM may not ferment properly and can be a problem. The price for this corn silage should be discounted.

 

Considering feed value

At the 2009 Tri-State Dairy Nutrition Conference, Normand St-Pierre reviewed the difference between valuing corn silage using the 7 bushels of corn per ton method plus harvest and storage costs and an adjustment for 10% fermentation loss, versus pricing based on the prevailing feed nutrient value (Sesame) pricing method (See http://tristatedairy.osu.edu/Proceedings%202009/St-Pierre%20paper.pdf). This method values the silage at what its nutrients are worth based on a wider selection of feed prices plus the harvest and storage adjustments. The ratio of the two methods for 2005 to 2008, was 1.27. In other words, the nutrient value of silage to the cow was potentially worth up to 27% more than the value based on the market price for corn. However, in this particular crop/price year (2011), that ratio is slightly higher at 1.3 to 1.35.

The SESAME value for Ohio corn silage is available in the most current edition of the Buckeye Dairy News available online at http://dairy.osu.edu.  Remember that this is the nutrient value for AVERAGE corn silage delivered to the cow, so harvest, storage, moisture, shrink and risk costs must be deducted from the SESAME value.

 

Other price adjustments and considerations

So, what does this mean in the real world? The 7-bushel method is a good starting point. There could be additional feed value to the buyer which has to be balanced against the harvest and fermentation risks that the buyer is assuming.
      
The last factor affecting the value of standing corn is risk. A farmer purchasing standing corn is assuming risk (Will it ferment properly? Can it be harvested at exactly the right time? What will the final nutrient content be?, etc.).

The price for the standing crop should be discounted to recognize these risks. What is the right amount to discount? This is not an easy question and is one of the factors to consider when the buyer and seller are negotiating a final price. Setting the final, fair price for corn silage rests on an understanding of the needs of both the buyer and the seller and negotiating a price that ensures a reasonable profit for both.

Finally, it is critical that both parties agree on price, payment method and timing, crop measurement, restrictions, and similar details before the crop is harvested! Ideally, the agreement should be in writing and signed by both parties. These agreements are especially important when large quantities of crops (and money!) are involved. While this type of contracting may be uncomfortable for some producers, mainly because they aren’t used to conducting business on more than a handshake, it forces the parties to discuss issues up front and can minimize troubling misunderstandings after harvest.

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