Dillon Feuz: Buying & selling corn silage
Questions often arise among farmers who have corn silage to sell and cattle operators who are looking to buy silage as to how to establish a fair price.
Because of the high moisture content of corn silage (50-75 percent water), transportation costs are rather substantial relative to the value of the feed. Therefore, silage tends to be marketed on a fairly local basis and there may be no market reported price.
Grains, on the other hand, have a relative low moisture content, 10-12 percent normally, and are transported all over the world. Market reports for grains are readily available on a national as well as a local basis.
Baled alfalfa hay has similar dry matter content to most grains but is a bulkier product adding to transportation costs. However, hay is still transported long distances including internationally and while the market reports may not be as readily available on hay as on grain, it is still possible to generally find a hay market report for your local area if there is hay being traded.
Because of the lack of market reports for silages and because of the general availability of market reports for grain and hay, buyers and sellers of silages have often relied on formulas to price silage based on grain or hay prices.
Formulas sound complicated and may well be. Frequently, these formulas are reduced down to some simple “rules of thumb” that may actually work fairly well in establishing the value of silages.
For example, the value of corn silage per ton on an as-fed basis is often said to be 8-10 times the price of corn grain in dollars per bushel. Similarly, corn silage value per ton as fed is often said to be one-third the value of baled alfalfa per ton.
I checked a set of market reports for a specific location and time period and found corn priced at $6.25 per bushel and alfalfa hay prices at $165 per ton. Using these “rules of thumb,” what would be the value of corn silage?
At 9 times the value of corn per bushel, silage would be $56.25 a ton and at one-third the cost of alfalfa silage would be valued at $55 a ton.
Before accepting that the value of all corn silage in that area should be between $55 and $56 per ton, one should examine some of the assumptions that are behind those “rules of thumb.” It is likely the case that if any of the assumptions do not hold true for an individual transaction, then the value may be considerably different than $55 to $56 per ton.
Let’s start with the assumption that will likely hold most all of the time and move to the assumption that may seldom hold.
In comparing the value of corn silage to the price of corn and the price of alfalfa hay, assumptions were made about the feed value of the corn silage, corn grain and alfalfa hay. It was likely assumed that corn grain was No. 2 yellow corn with 12 percent moisture and there would be 56 pounds of corn per bushel. Generally, any corn price that is not for this grade of corn will explicitly list what specification is not met, for example: high moisture corn is for greater than 15 percent moisture or low test weight corn for lighter corn. No. 2 yellow corn is assumed to have a Total Digestible Nutrient (TDN) value of 88 percent and a Crude Protein (CP) value of 9.8 percent.
Alfalfa hay is much more variable than No. 2 yellow corn. For example, alfalfa hay may be harvested in an early vegetative to a mature state and have Relative Feed Values (RFV) ranging from 100 to over 185. TDN value may range from 55-66 percent and CP values will vary from 13-27 percent. Therefore, if corn silage value is to be one-third the price of alfalfa hay, what quality of alfalfa hay should be used to establish the price?
Corn silage nutrient content can vary considerably based on the percentage grain in the silage which is primarily influenced by the stage of maturity when the corn is chopped. Generally corn will have higher TDN and lower protein than alfalfa hay. Balancing considerations for energy, protein and forage digestibility, better quality corn silage should probably be compared to Premium/Good alfalfa and poorer quality corn silage to Fair alfalfa hay.
If buyers and sellers of corn silage want to know the true value of corn silage, then they probably should sample the silage and have an analysis done to determine the nutrient values. However, perhaps even more important when determining the value of silage, is to know the percentage dry matter. The “rules of thumb” previously discussed likely assume that corn silage is 33 percent dry matter. However, dry matter may vary from 25-40 percent on corn silage. This has a substantial impact on the value of the corn silage.
Let’s look at an example of how the percentage dry matter in silage impacts the value of the feed. Let’s assume that the buyer and seller of the corn silage agree that it should be valued at one-third the price of good quality alfalfa. They check the price of alfalfa and agree that it is $165 per ton. Therefore, using the rule that silage is one-third the price of alfalfa they agree on a price for silage of $55 per ton.
In too many instances, this is the extent of the agreement. Now let’s consider how much they paid on a dry matter basis if the silage was only 25 percent dry matter compared to silage that was 35 percent dry matter. The cost per ton of corn silage on a dry matter basis varied from $220 per ton to $157 per ton ($55/.25=$220 and $55/.35=$157). By comparison, the alfalfa that was $165 per ton was 89 percent dry matter; therefore the dry matter price for alfalfa was $185 per ton ($165/.89). The 25 percent dry matter silage was clearly overpriced. Water was being traded rather than energy and protein.
To avoid the problem of paying too much or too little for corn silage, the value should be determined on a dry matter basis and then the price be converted to the as fed or as harvested price. Continuing with the example above, let’s assume that the buyer and seller agreed on the $55 per ton for corn silage value, but they stipulated that this was for 33 percent dry matter silage. So, the agreed upon value on a dry matter basis is: Dry Matter Price = $55/.33 = $166.67. Now, as the corn silage, is harvested on different days and from different fields throughout the fall, samples should be taken to determine the percent dry matter. Then as percent dry matter varies, so should the as fed or as harvested price vary. For example:
As Fed Price = $166.67 * .25 = $41.67/ton for wetter silage compared to As Fed Price = $166.67 *.33 = $55/ton for average silage.
Pricing silage can be a challenge when there is often not a market reported price. However, it is possible to establish a fair price using a dryer feed like corn grain or alfalfa hay. Once a value is agreed upon, and as part of the negotiations, there should also be an agreement upon the expected dry matter percentage of the feed and the as fed price should be adjusted for actual moisture content.
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