Determining the value of silage to buyers and sellers

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The shortage of forage and high grain prices have left many cattlemen searching for livestock feed, and many long white bags in a cornfield will draw questions if silage is available, and if so, what is the price.  While a fair price is a function of the availability, how is that determined?

Determining the price of a quantity of corn depends on its volume and quality characteristics.  And that can usually be quickly determined.  But determining the price of silage takes longer because of all the variables that have to be reconciled.  Michigan State University Extension Specialist Craig Thomas says silage prices depend on the quality, moisture content, and the grain content per ton of silage, which are all considerations of the buyer.  But he says the seller has value considerations as well as they pertain to the value of the biomass removed from the field.

Thomas offers a pricing scheme for corn silage based on compensating the seller for the value of the shelled corn and comparing the silage to alternative feeds the buyer must purchase.  He says negotiate a price, then adjust that price, “It is primarily based on the price of dry shelled corn, but also accounts for the seller’s cost of bringing dry shelled corn to market, the value of the stover for fertilizer, and for variation in dry matter (DM). Once an initial negotiable price has been calculated both seller and buyer should consider several non-quantifiable factors to arrive at the final price.”

Determining the grain value

The grain price should be the local cash price at the time the silage was harvested.  The quantity will vary depending on the environmental conditions during the growing season, and 2012 will create some problems with that determination.  Research points to a total of 7.5 bushels of corn per wet ton of silage, based on a grain yield of 125 to 150 bushels per acre. Thomas says the silage should be sold on the basis of 35% dry matter content. 

Adjust the silage price

The seller’s adjustments include several deductions that are not expenses, since the corn was not sold as grain.  Those include combining costs, drying, transportation, and storage costs.  Thomas says the grain yield, multiplied by the seller’s adjusted grain price is the sellers adjusted value of the silage at 35% dry matter.

Adjustments to the fertilizer value of the stover

The seller is losing the value of the stover to return phosphate and potash to the soil.  Those values are determined by the dry stover yield in weight, multiplied by the value of the nutrients per pound.  Since the seller is losing that value, the final price of the silage should be adjusted to compensate him.

Adjustment for changes in dry matter

The dry matter of the silage may vary considerably due to stage of maturity of the corn and any delay in harvest, so the moisture content should be checked to determine the moisture.  If the dry matter is below 35%, the wet price is reduced, and if the dry matter content is above 35% the price is increased.  Thomas recommends weighing every load

Final considerations

Once the negotiated and adjusted silage price of dollars per wet ton of silage is calculated, that becomes the initial negotiating point, says Thomas.  He says that is the minimum price for the seller, based on his breakeven price that would have been an alternative to harvesting shelled corn. Other considerations for the seller include soil compaction at harvest time for the silage and the value of the stover to prevent soil erosion. The buyer should consider alternative feed availability based on price and nutrition. Another adjustment may also include a trade of manure application in return for the stover loss.  Thomas offers a spreadsheet to help calculate the various equations.

Summary:

One farmer’s corn is another farmer’s silage, but determining the value to each has to include many considerations.  The value of the dry matter in the silage should be determined, and then adjusted by many factors including factors both beneficial and detrimental to the seller, and factors that the buyer must consider.

Source: FarmGate blog


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