Corn Stover Economic Considerations Iowa Corn Stover Harvest

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Corn Stover: Economic Considerations Iowa Corn Stover Harvest Meeting Dubuque, Iowa March 6, 2013

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 Extension and Outreach/Department of Economics

Renewable Fuels Standard (RFS) Extension and Outreach/Department of Economics

Renewable Fuels Standard (RFS) Extension and Outreach/Department of Economics

Source: NREL Extension and Outreach/Department of Economics

Source: NREL Extension and Outreach/Department of Economics

Cellulosic Biofuel is a New Market Ø There is much uncertainty about many aspects

Cellulosic Biofuel is a New Market Ø There is much uncertainty about many aspects of production and trade. Ø What are the revenues/costs of biofuel and feedstock production? Ø How will these revenues/costs flow through the supply chain? Ø To whom will the revenues and costs accrue? Extension and Outreach/Department of Economics

Soil and Residue Management Source: Jarboe, et al. 2011 Extension and Outreach/Department of Economics

Soil and Residue Management Source: Jarboe, et al. 2011 Extension and Outreach/Department of Economics

Producer Challenges Challenge Average Rating Nutrient loss 5. 55 Distance to markets 5. 52

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 Extension and Outreach/Department of Economics

Ag Decision Maker file A 1 -70, ”Estimating a Value for Corn Stover” Extension

Ag Decision Maker file A 1 -70, ”Estimating a Value for Corn Stover” Extension and Outreach/Department of Economics

Pricing Corn Stover Added costs to seller (minimum price to accept) • Harvesting and

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. Extension and Outreach/Department of Economics

Costs to Seller (custom rates) Assume 2 tons of 80% dry matter stover harvested

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 – Raking – Baling ($11. 50 / bale x 4 bales/ac) – Collecting ($3. 75 / bale x 4 bales) – Transport (20 mi. @ $. 25/mi/bale) – Total Extension and Outreach/Department of Economics $11. 40 $ 6. 25 $46. 80 $15. 00 $20. 00 $99. 45/ac.

Costs to Seller (variable costs only, including labor) Harvesting costs, $/acre (variable costs) –

Costs to Seller (variable costs only, including labor) Harvesting costs, $/acre (variable costs) – Chopping stalks – Raking – Baling (including twine) – Collecting – Transporting($3. 65/ton x 2. 5 tons) – Total Based on m. s. thesis by Kevin Peyton, 2012. Extension and Outreach/Department of Economics $ 9. 84 $ 5. 31 $15. 21 $ 4. 25 $ 9. 12 $43. 73/ac.

Nutrient removal per ton of dry matter – 5. 9 lb. P @ $.

Nutrient removal per ton of dry matter – 5. 9 lb. P @ $. 48 – 25. 0 lb. K @ $. 50 (ISU Pm 1688) X 2 tons/acre (dry matter) + harvesting costs (custom) Total cost per acre Cost per wet ton (2. 5 t /acre) Cost per bale Extension and Outreach/Department of Economics $ 2. 83 $12. 50 $15. 33 / dry ton ` $30. 66 / acre $99. 45 / acre $130. 11 $ 52. 04 / ton $ 32. 53 / bale

Nutrient removal per ton of dry matter – 5. 9 lb. P @ $.

Nutrient removal per ton of dry matter – 5. 9 lb. P @ $. 48 – 25. 0 lb. K @ $. 50 (ISU Pm 1688) X 2 tons/acre (dry matter) $ 2. 83 $12. 50 $15. 33 / dry ton $30. 66 / acre + harvesting costs (variable) Total cost per acre Cost per wet ton (2. 5 t /acre) Cost per bale $43. 73 / acre $74. 39 $29. 76 / ton $18. 60 / bale Extension and Outreach/Department of Economics

Maximum Price to Offer = value of feedstuffs replaced per wet ton of stover

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 Extension and Outreach/Department of Economics

Bargaining Range Seller’s Minimum Per wet ton $52. 04 to Per bale (1, 250

Bargaining Range Seller’s Minimum Per wet ton $52. 04 to Per bale (1, 250 lb) $32. 53 to Extension and Outreach/Department of Economics Buyer’s Maximum $87. 80 $54. 88

Market Price at Iowa Auctions (USDA Hay Market News) January: $56 - $72 per

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. Extension and Outreach/Department of Economics

Bargaining Range Seller’s Buyer’s Minimum Maximum Per wet ton $52. 04 to $87. 80

Bargaining Range Seller’s Buyer’s Minimum Maximum 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 Extension and Outreach/Department of Economics

Price for Ethanol Feedstock • If processor does the harvesting, producer needs to cover

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. Extension and Outreach/Department of Economics

Some Guidance on Pricing Extension and Outreach/Department of Economics

Some Guidance on Pricing Extension and Outreach/Department of Economics

Other Items to Consider Ø Cleanliness of stover? Source: Darr, et al. 2012 Ø

Other Items to Consider Ø Cleanliness of stover? Source: Darr, et al. 2012 Ø Yield impacts of stover removal? Ø Less tillage needed? Ø Compaction? Ø Time needed for fall tillage and fertilizer? Extension and Outreach/Department of Economics

Commodity Contract Ø Legally binding agreement to exchange a future commodity for a payment.

Commodity Contract Ø Legally binding agreement to exchange a future commodity for a payment. Ø Major points to discuss • Nature of product • Quantity of product • Quality of product • Pricing formula • Timing of exchange • Location of exchange Extension and Outreach/Department of Economics

Farm Lease: Who Owns the Stover? Iowa Code 562. 5 A “Unless otherwise agreed

Farm Lease: Who Owns the Stover? Iowa Code 562. 5 A “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. ” Extension and Outreach/Department of Economics

Lease Considerations • Cash rent lease: tenant has paid expenses, can sell stover as

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 Extension and Outreach/Department of Economics

Thank you for your time! Any questions? Ag Decision Maker web site: http: //www.

Thank you for your time! Any questions? Ag Decision Maker web site: http: //www. extension. iastate. edu/agdm/ Extension and Outreach/Department of Economics