Corn Stover Economic Considerations

1. Corn Stover Economic Considerations Integrated Crop Management Conference Ames, Iowa November 29, 2012 Chad Hart and William Edwards Department of Economics Iowa State University

2. Renewable Fuels Standard (RFS)

3. Source: NREL

4. As a new market, there is uncertainty about many aspects of production and trade What are the revenues/costs of biofuel and feedstock production? How will these revenues/costs flow through the supply chain? Cellulosic Biofuel is a New Market

5. Legally binding agreement to exchange goods or services for a payment • Outlines the risk-return tradeoff between buyers and sellers • Often addresses the major benefits/challenges of the trade Contract

6. Essential Elements for Producer Participation in Biomass Markets Darren H. Jarboe, Bobby J. Martens, M. Mainul Hoque, and Georgeanne M. Artz Iowa State University Survey conducted in 2011 Sent to 2,250 Iowa crop producers farming 50 acres or more

7. Biofuels Knowledge Source: Jarboe, et al. 2011

8. Interest in Supplying Biomass Source: Jarboe, et al. 2011

9. Soil and Residue Management Source: Jarboe, et al. 2011

10. Producer Challenges Challenge Average Rating Nutrient loss 5.55 Distance to markets 5.52 Long-term biomass market viability 5.44 Biomass price volatility 5.26 Soil erosion issues 5.19 Percent of biomass removed 5.13 In-field transport and compaction 5.00 Contract opt-out clauses 4.99 Contract terms of storage 4.93 Residue management 4.92 Source: Jarboe, et al. 2011

11. Brief Outline of 2012 DCE Contract • Harvest 2 dry tons per acre • $7.50 per bale • $1.50 per acre if not harvested • Bales moved to field edge within a week • Bales moved from field edge by March 2013 • DCE covers harvest, transportation, and storage costs

12. Pricing Corn Stover Added costs to seller (minimum price to accept) • Harvesting and transporting (unless buyer does this) • Nutrient replacement • Reduced tillage? (cost saved) • Yield effect? Value to buyer (maximum price to pay) • Tied to price of gas and oil (ethanol use) • Tied to prices of alternative feedstuffs (feed use) For trade to occur, the price must be between these values.

13. Ag Decision Maker file A1-70, ”Estimating a Value for Corn Stover”

14. Added Costs to Seller • Harvesting costs (custom rates, $/acre) • Chopping stalks $11.05 • Raking $ 6.20 • Baling ($11.50 / bale x 4 bales/ac) $46.00 • Transport (20 mi.@$.25/mi/bale x4) $20.00 • Total $83.25

15. 5.9 lb. P @ $.53 $ 3.13 25.0 lb. K @ $.55 $13.75 $16.88 / dry ton X 80% dry matter $13.50 /wet ton x .6 wet tons/bale x 4 bales/ac = $32.40/acre + harvesting costs $83.25/acre Total cost per acre $115.62 Cost per wet ton (80% d.m.) $ 48.19 /ton Nutrient removal per ton of dry matter

16. Maximum Price to Offer(value of feedstuffs replaced) • 1.16 tons grass/legume hay per ton of stover @$125 $145.00 • minus .22 tons of distillers grains @$260 $ 57.20 $ 87.80/t. stover Price range = $48.19 to $87.80

17. Price for Ethanol Feedstock • Maximum price depends on value of crude oil, other feedstocks, gasoline, etc. • If processor does the harvesting, producer needs to cover added fertility costs, only. • Example: $13.40 per wet ton $32.40 per acre

18. Relevant Trading Range • Buyer and seller can bargain between the maximum and minimum • If the minimum price > maximum price, it is not economical to use the stover

19. Some Guidance on Pricing

20. Other Items to Consider Source: Darr, et al. 2012 • Cleanliness of stover • Yield impacts of stover removal? • Less tillage needed? • Compaction? • Time needed for fall tillage and fertilizer?

21. Thank you for your time!Any questions?Ag Decision Maker:http://www.extension.iastate.edu/agdm/