Economics

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Economics Marketing of Corn Silage

• Curt Lacy
• Extension Economist - Livestock

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Overview

• Determining the value of silage What can you
  pay?
• Cost of silage What can you charge?
• Silage
• Harvesting
• Economics of these methods

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Methods of Procuring Silage

• Raise and harvest
• Raise and custom harvest
• Contract production
• Purchase in field and harvest

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Methods of calculating the value of silage

• Corn Silage value relative feed value of a
  known market such as corn grain or baled hay
• 1/3 ½ value of hay e.g. hay 70/ton
  silage 23 - 35 per ton
• 7-8x the price of a bushel of corn. If silage
  harvested 10x. E.g. corn 2.50/bu,
  silage17.50-20, if harvested 25

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Methods of calculating the value of silage

• What it would cost to replace or substitute
  another feed.
• Calculated using market prices for energy,
  protein, and digestibility as measured by NEL,
  crude protein, and NDF. Prices of corn, SBM, and
  legume hay can be used to determine market prices
  for these nutritional components.
• Calculated using other feed sources such as
  clover, alfalfa, lespedeza, ryegrass, etc.

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Substitution Examples
Example 1 Nutritional Components
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Methods of calculating the value of silage

• Some price agreed upon between buyer grower.
• Seller What can I pay/What is it worth to me?
• Grower What does it cost?

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Economic Value of Silage-Buyer

• Estimate by including all costs except for silage
  i.e. returns to silage
• Divide by tons fed

Net Returns (with silage value of zero) tons of
silage Returns to silage or Value of silage
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Value of Silage Using Different Methods
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Cost of Silage 300 ac
VC 357.16/ac FC 74.07/ac
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Cost of Silage 75 ac
VC 357.16/ac FC 165.61/ac
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Cost of Producing Silage - Grower
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Cost of Producing Silage - Grower
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Cost of Producing Silage - Grower
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Calculating Custom Charges

• Variable Costs
• Seed
• Fertilizer
• Chemicals
• Fuel oil
• Repairs
• Labor
• Irrigation
• Interest

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Calculating Custom Charges

• Fixed Costs
• Depreciation
• Interest
• Taxes
• Insurance
• Storage

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Steps in Calculating Custom Charges

• Estimate variable costs easy use budgets.
  However, machinery costs can be more difficult
• Estimate fixed costs

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Calculating Machinery Costs
Machinery Cost Variable Cost Fixed
Cost Variable Cost Fuel Repairs
Labor Fixed Cost DITIS Depreciation
Interest Taxes InsuranceStorage Managem
ent usually 6 of gross
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Calculating Variable Machinery Cost

• Fuel gal/hr ac/hr
• Repairs of investment
• Labor machine hrs/ac multiplier (gt1)

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Machinery Example

• Self Propelled Chopper
• 300,000 cost
• 10,000 salvage
• 10 years
• 6 rows 180 or 15
• 4 mph
• 70 efficient
• 23 gal of fuel/ac

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Fuel Costs
Fuel Costs/ac Fuel cost/hr Acres/hr Acres/h
r Width Speed Efficiency 43,560 Acres/hr
15 4(5,280) .7 43,560 5.09 ac/hr
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Fuel Costs - continued
23 gal/hr 5.09 ac/hr 4.52 gal/hr
0.90/gal 4.07 fuel cost per acre
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Machinery Costs

• Repairs Investment Repairs
• 300,000 .0004 120/hr
• 120/hr
• 5.09 hr/ac 23.58/ac

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Machinery Costs Labor
Hrs/ac Labor multiplier 5.09 ac/hr 1/5.09
.20 hrs/ac 1.2 .24 hrs/ac 6 1.41/ac
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Machinery Costs - Fixed
There are several methods to calculate fixed
expenses. The simplest is to simply multiply
annual depreciation by some fixed percentage.
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Machinery Costs Fixed Costs

• Costs to include along with a reasonable
  percentage
• Depreciation (9)
• Interest (5)
• Taxes (1)
• Insurance (1)
• Storage (1)

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Calculating Fixed Machinery Costs

• Estimate total fixed costs
• Determine number of acres to apply
• Estimate tons/ac to get /ton
• DONT DO IT TOO CHEAP!!!!

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Machinery Costs - Fixed
300,000 17 51,000 fixed costs/year For 500
acres FC 102.00/ac For 1000 acres FC
51.00/ac
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Machinery Costs - Summary
Fuel 4.07 Repairs 23.58 Labor
4.01 Fixed 51.00 Total 82.66 Mgmt
(6) 4.96 Total Mgt 87.62
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Calculating Machinery Fixed Cost

• A more accurate way is to estimate depreciation
  and interest separately
• Depreciation
• Interest
• Taxes of investment
• Insurance of investment

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Machinery Costs Alternative Method
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Machinery Costs - Alternative
For 500 acres FC 98.40 For 1000 acres FC
49.20/ac
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Machinery Costs - Summary
Fuel 4.07 Repairs 23.58 Labor
4.01 Fixed 49.20 Total 80.86 Mgmt
(6) 4.85 Total Mgt 85.71
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Summary

• Custom Hire/Custom Harvesting can be useful for
  many dairy producers
• Producers should know the value of silage to
  their operation
• Harvesters should know their cost of production
• Both parties should be realistic and reasonable