Dairy Channel: Step right up for pricing jeopardy

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Answer: Four; one each for the cow, the dairy guy, the crop guy and the grain market.

Question: How many different values can we put on corn standing in the field that someone wants to buy or sell as corn silage?

While I would love to be able to give you a single price that works for everyone, it isn’t going to happen. There are many different ways to calculate a price, and a number of factors to consider.

What I can give you is a range within which you can begin negotiations. For this discussion we are looking at a crop that is already standing in the field.

I don’t care what it cost to grow the stuff (important, but not part of today’s discussion) we are only looking at how it will be harvested.

First, let’s consider each party’s point of view:

The cow: Corn silage is not required by dairy cows, it is only a vehicle containing nutrients required by cows.

From her perspective, the price of the silage is based on its nutrient composition and the prices of alternative feeds. If a dairy farmer can purchase the nutrients provided by corn silage less expensively from other sources, and provide a balanced and productive ration, he should not buy the silage.

The dairy guy: Right up front we can say that the dairy guy doesn’t want to pay any more than he has to for silage. Reasonable business practice, especially considering this years’ pitiful milk prices.

He also wants a quality feed that he can use to provide a good, consistent, balanced ration to his herd. That means getting it harvested, processed and ensiled at the right moisture.

The crop guy: Basically this party has three choices about what to do with his standing corn.

He can combine it and sell it as a grain crop, he can sell it as corn silage or he can let it rot in the field (not usually the first choice!).

If he sells the crop as silage he may be concerned about controlling traffic in his fields, and loss of fertilizer, organic matter and ground cover value of the corn plant that otherwise would stay on the field.

The dairy guy may be able to trade back some manure to counteract these last concerns.

The grain market: The value of the crop harvested as grain will vary from farm to farm depending on how they price their grain.

A farm that contracts for price and/or has the ability to store grain will have a different price than the guy who goes from field to elevator and takes what the elevator gives. However, this value sets the floor for price negotiations for a crop that will make grain.

For example, if a field makes 120 bushels per acre, and harvest ($23.50 per acre), hauling plus 1 month’s storage ($0.065 per bushel) and drying ($0.15 per bushel) costs are deducted, the farmer will net $280.70 per acre if the corn grain is sold for $2.75 per bushel.

Divide $280.70 by the 16 tons of silage per acre that would be the likely yield and the answer, $17.54 per ton, is the minimum the grain guy should accept.

This simple calculation can be used to determine an individual farm’s values.

Back to the cow: To put a max value on the silage crop, we go back to the cow. Dry matter, energy, protein and fiber.

Unless we price after the fact, we have to use estimates of these values. Using NRC 2001 values for these nutrients and “historic” price estimates for these nutrients, The SESAME computer program tells us that corn silage in front of the cow is worth around $35.46 per ton at 35 percent dry matter.

This is not what a dairyman should pay in the field, but what it is worth in front of the cow.

The value to the cow has to be adjusted for the costs of: harvest ($4-$5 per ton), storage ($3-$4 per ton), shrink (10 percent of the value – $3.55 in this example) and risk.

If we start with a value of $35.46 in front of the cow and make these adjustments, the standing crop is worth a maximum of about $23.40 per ton before any adjustment for the risk the dairyman is assuming (actual dry matter, nutrient values, successful fermentation, other factors.)

Work together. Now the dairy guy and the crop guy can work together to come up with a mutually satisfactory price for the standing corn.

Corn silage is a good feed value for the dollar for the dairyman. Selling the corn as silage has a lot more up-side price potential for the crop guy than shelling and selling.

Each must recognize the other’s concerns and risks when agreeing on the final price and conditions.

This year, some corn will not make grain. While the crop can still make silage, immature/wet corn silage does cause decreased dry matter intakes.

Decreased dry matter intakes reduce feed costs slightly, but reduce milk production more. Dry matter values should be discounted 15 percent for immature corn to compensate for these results at today’s nutrient and milk prices.

This is a very quick look at pricing considerations for this fall.

More detailed examples and explanations are available. Drop me a note at shoemaker.3@osu.edu if you are interested.

If entering into an agreement, talk through and, preferably, get in writing the details of who, what, where, when, how and how much before the chopper hits the field.

If you can’t agree on the details before chopping, you’ll never agree on them after. Have a safe harvest.

(The author is the northeast Ohio district dairy specialist with OSU Extension. Send comments or questions in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)

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