Buying Standing Corn for Silage in 1997
Farm Business Management Update, October 1997
By Jack Dunford of the Department of Agricultural and Applied Economics, Virginia Tech
Based on expected prices of competitive feeds (shelled corn and 48% SBOM), 1997 corn silage will have a nutritional value equal to $25 to $28 per ton, considerably less than last year when near record corn grain prices were experienced. The value of the silage delivered to the cow include harvesting, hauling, and filling costs as well as storage losses in the silo. Another important point to make is that this nutritional value represents good quality corn silage, harvested at appropriate dry matter levels. The nutritional value may need to be adjusted based on estimated variations in dry matter level or nutrient content.
To arrive at a price for standing corn, the purchaser must calculate his chopping, filling, and storage-loss costs and then deduct these expenses from the nutritional value of the silage. The 1997 Shenandoah Valley Custom Rate Guide reports $60 to $75 per acre or $4 to $5 per ton average rates to custom harvest corn silage. However, if a long hauling distance is necessary, a charge of $.50 to $.75 per loaded mile per ton may need to be added to this cost. In addition, storage losses need to be estimated to account for dry matter and nutrient losses in the silo. Following is an example of how to make the calculations:
|Lower Costs||Higher Costs|
|Harvest and fill per ton||$4.00||$5.00|
|Haul 4 miles||$2.00||$3.00|
|Storage losses per ton||$2.50 (10% loss)||$4.00 (15% loss)|
|Total costs per ton||$8.50||$12.00|
In this example the purchaser would need to deduct from $8.50 to $12.00 per ton from the nutritional value of the silage ($25 to $28 per ton) to arrive at his highest offering price for the standing. Thus, at varying rates of nutritional value and harvesting costs, the cattle feeder could calculate his bid as follows:
|Nutritional value of silage||$25.00||$25.00||$28.00||$28.00|
|Buyer's harvest costs||$ 8.50||$12.00||$ 8.50||$12.00|
|Maximum bid for standing corn||$16.50||$13.00||$19.50||$16.00|
With the assumed four-mile haul and 10 to15% storage losses, the price range for the standing corn in this example is $13.00 to $19.50 per ton, depending on the actual quality of the silage, the buyer's harvest costs, and demand for the standing corn. In this example if the purchaser has to pay significantly more for the standing corn, he may be better off feeding his cattle alternative feeds.
These numbers are not meant to set prices for standing corn in the Valley, but are only to be used as a guide in determining individual prices. Many variables including expected yield, quality of the crop, proximity to the silo, and competition in the community for the standing corn will affect the final price for the crop.
The seller of the corn should also calculate his alternative income that could be derived from marketing it as shelled corn. According to the Custom Rate Guide, average custom combining rates are $26 per acre and grain hauling is $.15 per bushel. The seller should estimate his gross income from selling the crop as grain and then deduct his expected harvesting and hauling costs to arrive at a net return per acre. Hopefully, the price he receives for the standing corn will equal or exceed the estimated net return from the grain. When the buyer and seller have both done their homework, they will have a reasonable negotiation range from which to settle on a final price for the standing corn that will be fair for both parties.
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