If it’s late summer it’s time to talk about pricing a corn crop standing in the field for corn silage.
This is always a challenging question as a number of factors contribute to the final price agreed upon by the buyer and seller that are challenging to quantify.
Bill Weiss, Normand St-Pierre and I have developed the following methodology to guide corn silage pricing discussions. This discussion begins with a corn crop standing in the field.
The grower’s goal is to recover the cost of producing and harvesting the crop plus a profit margin. Their base price is 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 be recognized that harvest risk is also being shifted from the grower to the buyer. To the grain farmer, the corn crop has 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 potential source of nutrients and organic matter.
This creates an opportunity for the dairy farm to provide nutrients and organic matter back to the corn fields from subsequent manure nutrient applications.
Standing crop value
To look at the value of the corn as silage, we can estimate that a ton of corn silage made from a good corn crop, on average, contains approximately 7.5 bushels of corn (ranging from 6.7 to 10 bushels). If corn is worth $3.15 per bushel at harvest, then the standing corn for silage would be worth about $23.63 per ton before the cost of harvesting for grain.
If we estimate a grain harvest cost of $76 per acre, or $4.22 per ton (combining, hauling, storing and drying of 2 points based on Ohio Farm Custom Rates 2014), then the corn silage is valued at $19.41 per ton.
However, since the nutrient and organic matter value that is removed from the field when the whole corn plant is chopped is roughly equivalent to the cost of harvesting the crop as corn grain (offsetting each other), we can use the price of corn times 7.5 bushels as the basis for pricing a standing crop ($23.63 per ton with corn priced at $3.15 per bushel during harvest).
This is a starting point; additional adjustments must be made.
Dry matter adjustments
The values discussed above are for corn silage at 35 percent dry matter. Prices also have to be adjusted for different dry matter concentrations. If actual dry matter was 30 percent, then the value is about $20/ton (i.e., 30/35 = 0.85 x $23.63/ton).
Corn chopped at more than about 38 percent DM, or less than about 30 percent 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 seven-bushels-of-corn-per-ton method, plus harvest and storage costs and an adjustment for 10 percent fermentation loss, versus pricing based on the 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 to 2008, was 1.27. In other words, the nutrient value of silage to the cow was potentially worth up to 27 percent more than the value based on the market price for corn.
The Sesame value for Ohio corn silage is available in the most current edition of the Buckeye Dairy News available online at www.dairy.osu.edu. 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. In addition, the Sesame value is based on average Ohio feed costs at a specific point in time. Local markets may give different results.
Other considerations
So, what does this mean in the real world?
The 7.5-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?). 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.
