Is Switchgrass In Your Future, And If So, Will It Be Profitable?

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The movement toward “advanced biofuels” means that ethanol plants will be able to digest cellulosic biomass and that some of your neighbors may be selling some of that cellulosic biomass to those plants. But even though switchgrass ought to be easy to grow across the Cornbelt, will yields be high enough and will costs be low enough for any chance at profitability? We’re glad you asked!

With corn approaching the upper limits of its permitted use for ethanol production under current federal policy, the push is on for biomass products to pick up the baton and run the next leg of the biofuels race. One of the first products that may be digested in a cellulosic ethanol plant is switchgrass, which is a warm-season grass native to this part of the world. Agronomically it can be produced, but will it be economically successful? Iowa State University economist Mike Duffy explores that question in a recent newsletter. Duffy looks at estimated production costs, and then changes some of the assumptions which may be more or less applicable to your operation.

At the outset, Duffy assumes: an $80 per acre land charge, a 4 ton yield, an 11 year stand with a need to reseed 25% of the initial stand, interest rates of 8% for establishment cost and 9% for operating costs, some fertility costs.
He uses a total establishment cost of $244.59, amortized over 11 years at an 8% rate, with an annual cost of $34.26 per acre. He adds a $6.18 annual reseeding cost. Those costs are combined with an annual production cost, which Duffy estimates at $288.46. That includes the land charge, fertility, harvesting, and baling into large squares. On a per ton basis Duffy estimates the production cost of $82.23.

Following harvest, and prior to delivery to the ethanol plant, the switchgrass bales must be stored somewhere. A 30,000 square foot hoop structure would hold 2,591 tons and would cost $12 per square foot for construction. His per ton storage cost is calculated at $16.67.

Part of the storage cost must transportation from the field to the storage site. By using a semi-trailer flatbed, 20 tons can be hauled at a $70 per hour rate. Duffy estimates the first trip at $6.10 per ton, with the transportation cost from the storage site to the ethanol plant to be another $8.65 per ton. The latter is based on a 30 mile one way trip to the plant at 45 mph. With transportation costs in hand, the total cost per ton of production is estimated at $113.66 per ton. Will your compensation from the ethanol plan cover that cost and return a profit to the operator?

Duffy suggests some potential ways to reduce your production costs:
1) If the yield increases per acre, the production cost will drop from$80 at a 4 ton yield to $55 for a 10 ton yield.
2) Based on a 4 ton yield, the production cost ranges from $70 if the land charge is $50 per acre to $90 if the land charge is $130 per acre.
3) Based on a 4 ton yield, production costs increase from $80 per ton if nitrogen is priced at 25¢ per lb to $95 per ton if nitrogen is priced at 75¢ per lb.
4) Based on a 4 ton per acre yield, the cost of storage could rise from $105 per ton to $125 per ton as the yield increases from 6 tons to 20 tons per acre.
5) Production costs would rise from $40 per hour or $107 per ton, to $118 per ton if the transportation cost rose to $100 per hour.
6) As the distance increases to the production plant, the production cost increases from $11 per ton to $123 per ton.
Duffy says before switchgrass can become a viable bioenergy crop, the engineering must be refined and key production issues must be addressed.

The production of switchgrass may be of interest to many farmers near newer generation ethanol plants that will be accepting biomass for cellulosic ethanol. However production costs may range toward $113 per ton. That number can rise and fall with changes made in land costs, fertility application rates, as well as transportation and storage costs.

Source: Stu Ellis, University of Illinois

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