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Corn Stover: Economic Considerations

Corn Stover: Economic Considerations. Iowa Corn Stover Harvest Meeting Dubuque, Iowa March 6, 2013 Chad Hart and William Edwards Department of Economics Iowa State University. Renewable Fuels Standard (RFS). Source: NREL.

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Corn Stover: Economic Considerations

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  1. Corn Stover: Economic Considerations Iowa Corn Stover Harvest Meeting Dubuque, Iowa March 6, 2013 Chad Hart and William Edwards Department of Economics Iowa State University

  2. Renewable Fuels Standard (RFS)

  3. Source: NREL

  4. There is much 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? To whom will the revenues and costs accrue? Cellulosic Biofuel is a New Market

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

  6. 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

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

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

  9. Costs to Seller (custom rates) Assume 2 tons of 80% dry matter stover harvested per acre, or four 1,250-pound bales) Harvesting costs $/acre • Chopping stalks $11.40 • Raking $ 6.25 • Baling ($11.50 / bale x 4 bales/ac) $46.80 • Collecting ($3.75 / bale x 4 bales) $15.00 • Transport (20 mi. @ $.25/mi/bale) $20.00 • Total $99.45/ac.

  10. Costs to Seller(variable costs only, including labor) Harvesting costs, $/acre (variable costs) • Chopping stalks $ 9.84 • Raking $ 5.31 • Baling (including twine) $15.21 • Collecting $ 4.25 • Transporting($3.65/ton x 2.5 tons) $ 9.12 • Total $43.73/ac. Based on m.s. thesis by Kevin Peyton, 2012.

  11. 5.9 lb. P @ $.48 $ 2.83 25.0 lb. K @ $.50 $12.50 (ISU Pm 1688) $15.33 / dry ton X 2 tons/acre (dry matter)` $30.66 / acre + harvesting costs (custom) $99.45 / acre Total cost per acre $130.11 Cost per wet ton (2.5 t /acre) $ 52.04 / ton Cost per bale $ 32.53 / bale Nutrient removal per ton of dry matter

  12. 5.9 lb. P @ $.48 $ 2.83 25.0 lb. K @ $.50 $12.50 (ISU Pm 1688) $15.33 / dry ton X 2 tons/acre (dry matter) $30.66 / acre + harvesting costs (variable) $43.73 / acre Total cost per acre $74.39 Cost per wet ton (2.5 t /acre) $29.76 / ton Cost per bale $18.60 / bale Nutrient removal per ton of dry matter

  13. Maximum Price to Offer =value of feedstuffs replaced per wet ton of stover fed 1.16 tons grass/legume hay @$125 $145.00 minus .22 tons of DDGs @$260 - $ 57.20 $ 87.80/t $54.88/bale

  14. Bargaining Range Seller’s Buyer’s MinimumMaximum Per wet ton $52.04 to $87.80 Per bale (1,250 lb) $32.53 to $54.88

  15. Market Price at Iowa Auctions(USDA Hay Market News) January: $56 - $72 per ton $35 - $45 per large round bale Price transported to auction. Purity likely lower than needed for biofuels.

  16. Bargaining Range Seller’s Buyer’s MinimumMaximum Per wet ton $52.04 to $87.80 Iowa auction prices $56 - $72 Per bale (1,250 lb) $32.53 to $54.88 Iowa auction prices $35 - $45

  17. Price for Ethanol Feedstock • If processor does the harvesting, producer needs to cover added fertility costs, only. Example: $19.16 per wet ton $30.66 per acre • Maximum price depends on value of crude oil, other feedstocks, gasoline, processing costs, etc.

  18. Some Guidance on Pricing

  19. 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?

  20. Legally binding agreement to exchange a future commodity for a payment. • Major points to discuss • Nature of product • Quantity of product • Quality of product • Pricing formula • Timing of exchange • Location of exchange Commodity Contract

  21. Farm Lease: Who Owns the Stover? Iowa Code 562.5A “Unless otherwise agreed to in writing by a lessor and farm tenant, a farm tenant may take any part of the aboveground part of a plant associated with a crop, at the time of harvest of after harvest, until the farm tenancy terminates as provided in this chapter.”

  22. Lease Considerations • Cash rent lease: tenant has paid expenses, can sell stover as part of the crop. • Need to agree on how much to remove. • Potential stover income may impact the rental rate. • Flexible cash lease: include stover sales in gross revenue? • Crop share lease: split stover revenue

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

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