Extension and Outreach/Department of Economics
Corn Stover Economic ConsiderationsIntegrated Crop Management Conference
Ames, IowaNovember 29, 2012
Chad Hart and William EdwardsDepartment of Economics
Iowa State University
Extension and Outreach/Department of Economics
Renewable Fuels Standard (RFS)
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2009 2012 2015 2018 2021
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Conventional Biofuels Cellulosic BiofuelsBiodiesel Additional Advanced Biofuels
Extension and Outreach/Department of EconomicsSource: NREL
Extension and Outreach/Department of Economics
Cellulosic Biofuel is a New Market 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?
Extension and Outreach/Department of Economics
Contract 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
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
Biofuels Knowledge
Source: Jarboe, et al. 2011
Extension and Outreach/Department of Economics
Interest in Supplying Biomass
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 ChallengesChallenge Average RatingNutrient loss 5.55Distance to markets 5.52Long-term biomass market viability 5.44Biomass price volatility 5.26Soil erosion issues 5.19Percent of biomass removed 5.13In-field transport and compaction 5.00Contract opt-out clauses 4.99Contract terms of storage 4.93Residue management 4.92
Source: Jarboe, et al. 2011
Extension and Outreach/Department of Economics
Brief Outline of 2012 DCE Contract
Harvest 2 dry tons per acre$7.50 per bale$1.50 per acre if not harvestedBales moved to field edge within a weekBales moved from field edge by March 2013
DCE covers harvest, transportation, and storage costs
Extension and Outreach/Department of Economics
Pricing Corn StoverAdded 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.
Extension and Outreach/Department of Economics
Ag Decision Maker file A1-70,”Estimating a Value for Corn Stover”
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
Nutrient removal per ton of dry matter – 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
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
Some Guidance on Pricing
Extension and Outreach/Department of Economics
Cleanliness of stover
Yield impacts of stover removal?
Less tillage needed?
Compaction?
Time needed for fall tillage and fertilizer?
Source: Darr, et al. 2012
Other Items to Consider
Extension and Outreach/Department of Economics
Thank you for your time!
Any questions?
Ag Decision Maker:http://www.extension.iastate.edu/agdm/