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Pricing Corn Silage - Fall 2016

John Hanchar, Farm Business Management
Northwest New York Dairy, Livestock & Field Crops

September 9, 2016
Pricing Corn Silage - Fall 2016

Determining Corn Silage Price

A farm business owner can examine how much corn silage he/she would be willing to supply to a market at a given price. Analysis of the farm business' cost structure for corn silage production combined with consideration of other factors help to define the supply relationship. A seller can develop a target based upon the above, but actual market conditions provide no guarantee that a buyer will purchase quantities desired at a price that achieves the producer's cost target.

Some farm business owners might approach the problem of determining corn silage price from a value in production, or input demand perspective. Amounts of corn grain and corn stover in a ton of corn silage, relevant prices, and corn silage's place in the milk production process are key variables. A buyer can develop a price target based upon the above, but actual market conditions provide no guarantee that a producer will sell the quantity desired at a price that matches the buyer's willingness to pay.

Although factors in price determination, the two approaches described above in isolation, don't completely determine price and quantity. Supply and demand relationships work simultaneously in markets to determine price and quantity. Empirical price analysis brings supply and demand relationships together to determine price.

Corn Silage Price Analysis

Empirical price analysis suggests that corn silage price is a function of corn silage quantities, alfalfa hay price, the price received by farmers for milk sold, and corn grain price. The ordinary least squares regression model here expresses corn silage price as a linear function of the above variables. The analysis is somewhat rough, elementary. However, readers of the original August 2012 article describing this work and readers of annual update articles note that the analysis and estimates generated help farm business owners price corn silage.

Corn Silage Price Estimates - Fall 2016

The ordinary least squares regression model reported in August 2012, updated here to reflect additional data available to date and changes in other underlying factors, including NYS drought conditions for 2016, produced corn silage price estimates for NY. Below, estimated corn silage price is a function of alfalfa hay price and corn grain price with other factors (corn silage production and milk price) fixed at expected levels. Expected corn silage quantity is set at 7,597,000 tons, 1 standard deviation below the average of 8,214,000 tons for the period 1991 through 2014. During this period, 16 percent of production observations fell below 7,597,000.

  • Estimated corn silage price ($/ton) = 11.189 + (0.185 x price of alfalfa hay ($/ton)) + (3.049 x price of corn ($/bushel))
Suppose
  • NY alfalfa hay price is $200 per ton, June 2016. (USDA/NASS. Agricultural Prices. Washington, DC: National Agricultural Statistics Service. July 29, 2016.), and
  • Corn grain price is $4.00 per bushel (Western NY Energy. "Corn Bids." August 9, 2016. Approximate value based upon reported bids for Fall 2016.)

Using the estimating equation and the above prices for alfalfa hay and corn grain, estimated corn silage price is about $60 per ton. Compare this to last fall's estimate of about $50 per ton. Suppose alfalfa hay price is $200 per ton and expected statewide corn silage production is 7,906,000 tons, 0.5 standard deviations below the mean. Then, estimated corn silage price would be $56 per ton. Buyers and sellers use an estimate as a base, typically, adjusting for quality and, or costs for harvest, hauling and storage based upon the situation, for example, when pricing standing corn for silage.

Corn silage price estimates combined with understanding of relevant supply and demand factors from the individual farm business owner's perspective, including local conditions, for example, effects of drought which can be local in nature, can aid decision making regarding corn silage price.



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Upcoming Events

Dairy Cattle Summer Research Update

July 18, 2019
7:00-9:00pm
Batavia, NY

After the day's work is done, come hear about two new research trials conducted by Julio Giordano's lab:
  • Strategies for improving dairy cattle reproductive performance and economics
  • Using automated sensors for improving dairy cattle health monitoring and management

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Weed Resistance Management Demonstration and Plot Tour

Event Offers DEC Credits

July 23, 2019
1:00 - 3:00 p.m.
Waterloo, NY

Come join us on July 23 in Seneca County at Quinten Good's farm for a demonstration and walking tour of 16 different pre- and post-emergence treatments in soybean and 12 different treatments and combinations in corn.
  • Tall waterhemp and marestail are two weeds that are resistant to glyphosate and ALS herbicide modes of action in the WNY and Finger Lakes regions.
  • Each year the number of acres with resistant weed populations expands.
  • For herbicides to be an effective tool in weed management, we have to know what chemistries & application timings are most effective against these resistant weeds.

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July 29, 2019
12:45 - 4 pm
Waterloo, NY

Join the Finger Lakes Graziers on a pasture walk and learn about soil health. 
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Announcements

USDA Announces New Decision Tool for New Dairy Margin Coverage Program

WASHINGTON, April 30, 2019 ? Agriculture Secretary Sonny Perdue announced today the availability of a new web-based tool - developed in partnership with the University of Wisconsin - to help dairy producers evaluate various scenarios using different coverage levels through the new Dairy Margin Coverage (DMC) program.

The 2018 Farm Bill authorized
DMC, a voluntary risk management program that offers financial protection to dairy producers when the difference between the all milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer. It replaces the program previously known as the Margin Protection Program for Dairy. Sign up for this USDA Farm Service Agency (FSA) program opens on June 17.

"With sign-up for the
DMC program just weeks away, we encourage producers to use this new support tool to help make decisions on participation in the program," Secretary Perdue said. "Dairy producers have faced tough challenges over the years, but the DMC program should help producers better weather the ups and downs in the industry."

The University of Wisconsin launched the decision support tool in cooperation with FSA and funded through a cooperative agreement with the USDA Office of the Chief Economist. The tool was designed to help producers determine the level of coverage under a variety of conditions that will provide them with the strongest financial safety net. It allows farmers to simplify their coverage level selection by combining operation data and other key variables to calculate coverage needs based on price projections.

The decision tool assists producers with calculating total premiums costs and administrative fees associated with participation in
DMC. It also forecasts payments that will be made during the coverage year.

"
The new Dairy Margin Coverage program offers very appealing options for all dairy farmers to reduce their net income risk due to volatility in milk or feed prices," said Dr. Mark Stephenson, Director of Dairy Policy Analysis, University of Wisconsin, Madison. "Higher coverage levels, monthly payments, and more flexible production coverage options are especially helpful for the sizable majority of farms who can cover much of their milk production with the new five million pound maximum for Tier 1 premiums. This program deserves the careful consideration of all dairy farmers."

For more information, access the tool at fsa.usda.gov/dmc-tool. For
DMC sign up, eligibility and related program information, visit fsa.usda.gov or contact your local USDA Service Center. To locate your local FSA office, visit farmers.gov/service-locator.


New Guidance for Mortality Disposal Issued

NYS Department of Ag and Markets has posted guidelines on disposal of livestock carcasses, in response to reports that some rendering companies have halted pickups from farms.

https://nwnyteam.cce.cornell.edu/submission.php?id=761&crumb=dairy|1

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