Dianne Shoemaker, Bill Weiss, and Normand St-Pierre, The Ohio State University Extension
How to price corn silage as a corn 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? Realistically, there is a range within which a reasonable price can be negotiated. We will take a look at pricing and other considerations from each party's point of view.
This corn silage pricing discussion is based on a corn crop standing in the field. While what it costs to grow the corn crop is important to the profitability of the crop farmer, it does not impact the final decision on a price for the standing crop. Presumably, the crop farmer wants to maximize income from the crop.
The grain market puts a value on the standing corn based on either the current market price, the anticipated market if the grain is stored for later sale, or the price at which the crop is contracted with a buyer of grain. In order to get that price, the grain farmer has to harvest and deliver the corn. Therefore, those costs must be deducted to calculate the net income for the crop sold as grain.
For example, if a farm can get $1.87 per bushel out of the field in early September and the crop will yield 120 bushels per acre, income per acre is $164.50 after harvest costs. Harvest costs are estimated from the OSU Extension publication "Farm Custom Rates Paid in Ohio, 2002", and Purdue Extension's "Indiana Custom Rates 2004" and adjusted for current energy prices.
If that 120 bushel/acre crop yields ~16 T of corn silage per acre, then the farm's lowest logical price should be $164.50 ÷ 16 = $10.28 per ton. If the dairy farmer is not willing to pay at least the equivalent amount for the crop as silage, the crop farmer will be better off to sell the crop as grain rather than silage.
In early September, cash grain markets are very low. It is unlikely that a market price of $1.87 less harvest costs will cover total costs of production for many farms. There is opportunity for the grain farmer to negotiate a price that covers their cost of production in the difference between the income from the crop sold as grain and the nutrient value of the crop harvested as silage to the dairy farmer. Each crop farmer should review their grain harvest costs and yield potential to calculate the value that best represents their farm.
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 ground cover and/or as a source of some nutrients and organic matter. This creates a potential opportunity for the dairy farmer to provide some nutrients and organic matter to the corn fields from manure.
The crop farmer may also have concerns about a different method of harvest (chopping vs. combining) and the potential impacts on the soils and access roads into the corn fields. What if soil conditions are wet when the corn crop is at its' optimum moisture level for harvest as silage? How is a decision reached to proceed with harvest? These are questions that need to be addressed between the buyer and seller before harvest begins.
Corn silage is not required by dairy cows; it is only a vehicle containing nutrients required by cows. Therefore, the value 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, they should not buy the silage.
To value silage based on nutrients provided, we need to estimate the dry matter (DM), energy (NEL), protein (CP) and fiber (NDF) provided by the silage. The NRC 2001 nutrient values are used for "normal" silage. The SESAME computer program was used to value each nutrient based on the September 2005 or estimated "historic" values of alternative feedstuffs that could be used in Ohio. The estimated "historic" prices give a slightly lower value for the nutrients, but represent a more realistic longer-term value to price a feed that will be used over an extended time in the coming year.
Based on the nutrient values calculated with the SESAME program, silage would be valued at $45.87/ton at September 2005 prices, or approximately $35.46/ton at "historic" prices determined for the fall 2003 silage harvest. These values are for the silage sitting in the feed bunk in front of the cow at feeding.
These are not the prices that a dairy farmer should pay for the crop standing in the field. The standing crop has not been harvested, fermented, or stored. Costs for these steps must be deducted from the value at feeding to arrive at an "in the field" price.
Standing corn must first be chopped, then ensiled, and stored before it is fed. Costs, losses, and risks are associated with each of these steps. The cost of chopping usually ranges from $4 to $7 per ton of silage (assumed to contain 35% dry matter). Historically, we have used a charge of $5 per ton. To reflect increasing fuel costs over the past few years, an additional $0.40 per ton was added. Chopping costs per ton decrease as per acre yields increase. Storage costs typically range from $3 to $4 per ton.
On average, about 10% of the material put into a silo is lost via fermentation (shrink). Additional storage and feeding losses do exist but are borne solely by the dairy farmer and do not enter into the equation to price standing corn.
Based on these assumptions, standing corn has a value of approximately $32/ton (35% dry matter) to a dairy farmer based on September 2005 nutrient values. In comparison, average normal corn silage with average yield has a value of approximately $23/ton (35% dry matter) using historic prices for alternative feeds. Final prices should be further discounted to reflect risk concerns.
The last factor affecting the value of standing corn is risk. A farmer purchasing standing corn is assuming risk (Is the corn high in nitrates? 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.