Is Switchgrass Production Right for Southside Virginia?

Farm Business Management Update, December 2008 - January 2009

By Eric Eberly (eeberly@vt.edu), Extension Agent, Farm Business Management Agent, Central District

Switchgrass is a native perennial grass that can be grown in Southside as well as other regions of Virginia. It can be used for hay, grazing, as well as bio-fuel feedstock. In discussions of bio-fuel industry development, switchgrass has been suggested as a viable production option for farmers. Without a bio-refinery, switchgrass must be used as a feed source for livestock. A linear programming model was developed using “QM for Windows” to explore the implications of switchgrass production on a typical Southside beef cow/calf operation. A beef cow/calf herd using fescue pasture and hay is the primary livestock operation. Production costs are based off of the Virginia Cooperative Extension Crop and Livestock Budgets (http://www.ext.vt.edu/cgibin/ WebObjects/Docs.woa/wa/getcat?cat=ir-fbmm-bu). These crop budgets were modified to reflect 2008 costs of production. Forage yields and distributions are based on USDA-NRCS CGraz Grazing Management Application with Virginia Piedmont data.

• The following initial assumptions were used in the analysis
• The traditional farm relies on fescue for pasture and hay as a winter feed
• Own 40 head of beef cows, either fall or spring calving utilizing stockpiled fescue
• Own 100 acres of improved fescue clover pasture divided into 6 rotationally grazed fields
• Up to 100 acres of crop land can be rented for $50 per acre
• Up to 100 acres of fenced pasture land can be rented for $25 per acre
• No more than 100 acres can be planted to a single cash crop
• Forage establishment costs are not included
• Fixed costs are not included

Corn (low & high yielding), soybeans, wheat, and canola are the cash grain crops that can be sold. Potential hay crops include orchardgrass, fescue, and switchgrass. Switchgrass can be harvested for either hay or bio-fuel. Forages include un-improved pasture, improved pasture, intensive pasture, stockpiled fescue, bermudagrass, and switchgrass. Table 1 lists the costs and potential returns of each crop listed.

Linear programs maximize income from alternatives based on initial resources, alternatives available and management restrictions placed on land, labor, and capital. From the alternatives listed in table 1, wheat provides the highest returns of the cash crops at $61 per acre followed by switchgrass for bio-fuel at $50 per acre. Intensive grazing provides the cheapest source of forage at $20 per ton of dry matter. There are a number of feasible profit-maximizing solutions that differ only by a few dollars of net returns. Financial management and weather risk are not considered in the model.

One answer to the question, “What forage crops do I need to support a 40 head beef cattle farm?” is presented in Table 2 (note again that these solutions do not consider establishment costs of forages). The 100 acres owned would be utilized as intensive pasture. The intensive pasture acres are rotationally grazed with paddocks of fescue/clover, fescue, stockpiled fescue and bermudagrass. An additional 88 acres of unimproved pasture are rented to provide additional grazing. Twenty-six tons of hay are needed to meet winter hay requirements and are provided by six and one-half acres of switchgrass. Purchasing hay to meet winter cow needs is also a viable option. Wheat is planted on 100 acres (maximum single crop restriction) of rented crop land as a cash crop.

An analysis using a linear program model provides several benefits. In addition to the optimum solution, data is generated to determine how sensitive the solution is to changing prices (price that changes quantity). This data is also generated for the crops and livestock not included in the optimum solution, so it is possible to analyze how they might be drawn into the optimum solution. Table 3 displays all crop and livestock alternatives not included in the optimum solution.

Table 3 answers a lot of “What-If” questions and is a good place to start evaluating alternatives. The difference between fall and spring calving cows is $10 and it is not considered a significant difference. Either spring or fall calving or some combination of the two provides similar returns. Whether or not beef cows are part of the farm operation is a management decision based on the availability of land, labor, machinery and equipment, and personal preferences. Minimizing winter hay feeding is a critical factor in becoming a low cost producer.

Corn, soybeans, small grains, and quality hay for horses are all potential cash crops. During the past year, the market has offered prices well above the prices used in this analysis. For comparison, wheat at $6 per bushel nets $11 per acre (60 bushels x $6 - $299 cost - $50 rent = $11). Corn (88 bu.) has equivalent returns above $5.19 per bushel (88 bushels x $5.19 – 397 – 50 = $9.72). Soybeans (30 bu.) have equivalent returns above $10.35 per bushel. Canola, on the other hand, requires very optimistic and unrealistic yields (2000 lbs. per acre) to be cost competitive with wheat in Southside Virginia. The decision whether or not to grow cash crop depends on the availability of planting and harvesting equipment (owned, rented or custom) with suitable land.

Switchgrass is in the optimum solution. Switchgrass (5 ton yield) provides the least cost source of winter hay feed. Switchgrass for hay remains in the solution with a reduced yield of 4 tons per acre. There is a two week window (June 15 – July 1) to harvest the first cutting of switchgrass. Mature switchgrass hay will require both protein and energy supplementation to provide the same feeding value as other hay crops. Switchgrass is planted on 3.5% of the acreage dedicated to forage production (0.1625 acres per cow).

Switchgrass for bio-fuel was not in the solution when valued at $50 per ton but it would be in the solution at $58 per ton. The solution does not tell how many acres would be harvested with the price change. A quick change in the sales price to $59 per ton results in renting the remaining crop land for switchgrass. There were no other changes in the solution. Wheat is still more profitable than switchgrass harvested for bio-fuel. At $60 per ton, the acreage planted to switchgrass swaps with wheat. However, switchgrass is still grown for livestock hay. At $65 per ton, there were no additional changes to the crop mix but net profitability has increased by an additional $2,500.

No-till establishment of switchgrass costs $262 per acre. The annual charge pro-rated over 10 years (without interest costs) would be $26.20 per acre. Establishment of switchgrass is not always successful and frequently must be planted again the next year. If the establishment of switchgrass fails the first year and needs to be replanted in year 2, additional costs of $100 ($86.25 seed + $13.50 to replant) would be required and result a total establishment costs of $362. Spreading this cost now over the remaining 9 years results in annual establishment cost recovery of $40 per acre.

Warm season perennial crops such as switchgrass can form an important part of forage production in Southside Virginia. In the described scenario, switchgrass is not part of the summer grazing program but is harvested for hay for winter feeding. Other warm season perennials such as bermudagrass complement the forage deficit of cool season grasses in the summer months. Under the assumptions described above, switchgrass uses less than 4% of the land base and therefore will not significantly increase the regional acreage for bio-fuel feedstock production. Establishment costs of $262 per acre or higher may limit the feasibility of planting switchgrass on livestock farms in Southside Virginia.

References

QM for Windows, version 2.1 (Build 66) by Howard J. Weiss, http://www.prenhall.com/weiss, email: dsSoftware@prenhall.com.

C-Graz Grazing Management Software, sponsored by USDA-NRCS and copyright 2003 by University of South Carolina, Virginia data set.

Switchgrass as an Energy Crop: Fertilization, Cultivar, and Cutting Management. Roque W. Lemus. PhD. Dissertation, Virginia Tech, 2004.

To Hay or Not to Hay: Hay Cost vs. Grazing Cost, Farm Business Management Update, December 2006/January 2007, By Gordon Groover (xgrover@vt.edu), Extension Economist, Farm Management, Department of Agricultural and Applied Economics, Virginia Tech. http://www.ext.vt.edu/news/periodicals/fmu/2006-12/hay.html.