You don’t have to look outside to know what season it is in an Extension office. You can tell from the questions that come in.
It is now corn silage pricing season. How to price corn for silage as a crop standing in the field is a regular and 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 harvest/drying/storage costs.
Hopefully this will also meet the goal of covering production costs and generating a profit.
To the grain farmer, the corn crop may have more value than just the income from the sale of grain. If the crop is sold as silage, the corn fodder is no longer available as a ground cover and/or as a source of some nutrients and organic matter.
This creates a potential opportunity for the dairy to provide some nutrients and organic matter to the corn fields from manure.
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.
Using last week’s Farm and Dairy prices for new corn rounded slightly for easy math…if corn is worth $3 per bushel, then the standing corn for silage would be worth $21 per ton before the cost of harvesting for grain, or between $18.50 and $19 per ton, depending on yield, and assuming a grain harvest cost of ~$40 per acre.
This value is for corn silage at 35 percent dry matter. Corn at higher or lower moistures may not ferment properly and can be a problem.
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 percent fermentation loss, versus pricing based on prevailing feed nutrient value (Sesame) pricing method.
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 2005-2008, was 1.27. In other words, the nutrient value of silage to the cow was potentially worth up to 27 percent more than value based on the market price for corn. (Remember that that also included harvest and storage costs.)
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 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 a really good idea if 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.
This column adapted from “Pricing Standing Corn for Silage” 2005. Shoemaker, Weiss, St-Pierre and “Economical Value of Corn Silage,” St-Pierre, Tri-State Dairy Nutrition Conference 2009.