Pricing drought damaged silage

Contributed by William Edwards, extension economist

Corn that has suffered severe drought damage is sometimes harvested as silage instead of as grain. It can still have significant feed value if harvested at the right stage. See the article “Alternatives for Drought-damaged Corn—Grain Crop or Forage” for harvesting recommendations. Any damaged acres that are covered by crop insurance should be viewed by an adjuster and released by the insurance company before harvesting takes place.

Grain producers may be willing to sell to the corn standing in the field, to be harvested by the livestock producer or a custom operator. The buyer and the seller must agree on a selling price.  The seller would need to receive a price that would give at least as good a return as could be received from harvesting the corn as grain. The buyer would need to pay a price that would not exceed the feeding value of the corn.  Within that range the price can be negotiated.

One ton of normal, mature standing corn silage at 60% to 70% moisture can be valued at about 10 times the price of a bushel of corn. For a $3.50 corn price, a ton of silage would be worth about $35 per ton. However, drought stressed corn may have only 5 bushels of grain per ton of silage instead of the normal 6 to 7 bushels. A value of about 9 times the price of corn would more appropriate. For silage with little grain content, a factor of 8 times the price of corn can be used.

If the crop is sold after being harvested and transported, those costs must be added to that value, typically $5 to $10 per ton, depending on whether it is done by a custom operator or the buyer, and the distance it is hauled. A buyer would only consider the variable costs for harvesting and hauling, whereas a custom operator would need to recover fixed costs, as well.

More information on valuing forage in the field, including an electronic spreadsheet for estimating a value for corn silage, for both the buyer and the seller, is available from Ag Decision Maker.

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Videos provide financial tips, explain mediation

Chad Hart, ISU Extension Grain Marketing Economist, highlights new Iowa State University Extension and Outreach videos for today’s current farm financial situation.

With commodity prices low and projected to stay that way over the next couple years, farmers have begun to feel the pinch in their pocketbooks. This has made managing the finances of the farm that much more important. With this in mind, Iowa State University Extension and Outreach has released two videos that deal with the current farm financial situation and what can be done to alleviate financial pressure.

I host the first video, titled Tips for Managing Margins. It offers ideas for how to weather the next few years of low crop prices like protecting capital, reviewing production costs and renegotiating loans.

The second video, called Understanding Farm Mediation, was created in partnership with Iowa Mediation Service and is about the process of mediation. Mediation is an option available to farmers as they work with their creditors to find a mutually beneficial solution to a delinquent secured agricultural debt of $20,000 or more.

This short video provides tips to help farmers better understand what mediation is and when it may be necessary. It describes the process and provides a step-by-step guide on how to prepare for mediation.

While mediation is available should it be needed, ISU Extension and Outreach also provides these financial resources to help farmers create a financial plan for their operation:

  • The Iowa Concern Hotline provides free legal information to both rural and urban Iowans. Services are available 24 hours a day, 7 days a week by calling 1-800-447-1985.
  • The Center for Agricultural Law and Taxation provides information about the application of developments in agricultural law and taxation.
  • Farm Financial Associates are available to provide a no-cost look at a farm’s complete financial situation.
  • The Beginning Farmer Center helps inform and support those who are getting started in farming. It also works with established farmers on succession planning for when they leave the industry.

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“Ag Cycles” and Iowa Agriculture

John Lawrence , ISU Extension Director for Ag and Natural Resources, provides an update of analysis completed and information available.

ISU Extension and the ISU Economics Department have put together a series of papers titled “Ag Cycles.” This collection of papers is an analysis of the current state of Iowa agriculture from the crop, livestock, and land market perspective. It examines the question of price levels and price risk going forward. It also includes a recent analysis and papers from the Federal Reserve Bank of Kansas City, which examines previous agricultural cycles and how they played out through borrower’s behavior. Combined, this analysis provides lessons from the past and milestones as potential guides to the future.

Agricultural production and prices have always been cyclical. The influence of weather on production is one factor. The tendency of individuals to react rather than anticipate market signals also contributes to boom and bust periods. The length of the cycle differs with the commodity, and the weather and cyclical prices in one commodity will influence cyclical behavior in another market.

 This analysis is not intended to be a forecast of annual prices in the coming months or years. Nor is it predicting gloom and doom for agriculture. Rather, it is intended to help put current economic conditions into a historic context, better understand the factors that will influence prices and margins in the future, and help you prepare for whatever direction the market turns.

This series of papers can be found in Ag Decision Maker at http://www.extension.iastate.edu/agdm/info/agcycles.html.

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Livestock Producers May Face Limited Feed Supplies

schultek_final Contributed by Kristen Schulte, Extension Farm Management Field Specialist, kschulte@iastate.edu and Lee Schulz, Extension Livestock Economist, lschulz@iatste.edu.  

The changing weather and crop conditions over the past year have raised questions again regarding quality and quantity of feed availability for livestock producers across parts of Iowa. Some producers stretched forage supplies over the winter due to the widespread drought that affected last year’s crops. Some of these same areas are facing a potential limited supply of forage or corn for the coming year due to a wet spring that caused prevented planting or inability to harvest early forages. As of the first week of July, over 70 percent of corn, hay, and pasture acres are in fair to good condition; however, crop progress in much of northeast and north central Iowa is behind the other regions of the state. Although it is unknown what the rest of the growing season will bring, livestock producers can start to plan if they anticipate limited feed inventories. Livestock producers should evaluate feed inventory, feed required and financial position.

Calculating Feed Inventory

Feed inventory can account for what is currently on hand and what is expected to be harvested this growing season as feed for the coming year. Inventory should be recalculated at the end of harvest. All forages and grain allocated for feed need to be accounted for. Forages in upright silos or bunkers can be calculated with estimated capacity tables based on dry matter (DM) and size of the silo or bunker. Feed grain stored on farm will need to be accounted for based on estimated capacity measurements or starting amount less shrink and amount fed. Also, pasture conditions should be monitored to account for supplemental forage if needed.

Feed Inventory Required

Livestock inventory needs to account for all animals that consume raised forage or grain. For each species type, total tons of raised feed fed per year is needed. Also, one needs to account for expected livestock inventory, accounting for expansion or fluctuation in inventory. Daily rations or weekly feed amounts can be used to reach a yearly feed intake value for all raised feed. Differences in DM or nutrient quality may influence amount of feed required over a years’ time. Total feed required will need to last until the following year’s harvest or feed availability date (e.g., alfalfa/grass – June 1; corn silage – September 15; corn – October 1); also, this time can be extended as some forages need to ferment before feeding.

The difference between raised feed available after 2013 harvests and annual feed inventory required will determine if additional feed is needed.

Low Feed Inventory

If feed needs surpass feed availability the producer has a shortage of raised feed. If there is a surplus of feed inventory, one should evaluate if there is an adequate amount of needed carryover. If there is a shortage, one should plan for purchase of additional feed and/or evaluate alternative feedstuffs with their nutritionist or livestock specialist. Although producers may want to save money when purchasing additional feed, it is important to keep in mind quality, feed efficiency, and adequate nutrition for long term viability.

Financial Impact Considerations

Some feed decisions may have an effect on the bottom line. Is purchasing feed a financially feasible solution based on projected breakeven and profitability? What funds are available to purchase additional feed? How do crop insurance proceeds from prevented planting acres correlate with purchased feed at market prices? What ration alternatives can be made to accommodate feed costs or limited feed availability and what are the associated costs? How do these changes affect feed cost per head and how does that compare to your desired feed cost benchmark? All of these answers are ones that each livestock producer will need to evaluate for their operation.

ISU Extension Resources

Estimated feed rations for beef, swine, ewes, and dairy can be found in the livestock budgets on Ag Decision Maker, http://www.extension.iastate.edu/agdm/livestock/html/b1-21.html. A sample feed inventory worksheet can be found on the ISU Extension Dairy Team website, http://www.extension.iastate.edu/dairyteam/sites/www.extension.iastate.edu/files/dairyteam/ISURecovery44FeedInventoryAidMgmt.pdf.

 

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November Livestock Outlook

Lee Schulz, ISU Extension Livestock Economist, on the November Livestock Outlook.

Harvest is wrapping up and producers are considering cattle feeding opportunities and cow herd operators are evaluating whether to sell their calves or retain ownership this year. Information from the feeder cattle futures market combined with basis forecasts can be utilized to garner value of gain projections to help guide these decisions. Currently, there are historically high values of gain and this is expected to continue. In fact, over the last few weeks the value of adding additional weight to calves has been increasing as there continues to be a desire for feedlots to put less weight on using corn. Of course these projections do not take into consideration costs of adding additional weight and producers will need to compare that to the values of gain. One factor potentially favoring adding weight to calves this fall is the higher than normal amount of drought damaged corn that was chopped for silage and may be available to feed calves.

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Drought Response for Swine Producers Webinar Is Aug. 29

In response to the current drought situation facing Iowa pork producers, Iowa State University Extension and Outreach swine program specialists will host a webinar on Wednesday, Aug. 29, from 1 to 3:30 p.m. at various locations. The program is free and no preregistration is required, according to ISU Extension swine program specialist Dave Stender.

Iowa State crop marketing specialist Chad Hart will assess the current and future crop outlook, and Iowa State livestock marketing specialist Lee Schulz will share information on the situation facing pork producers and the pork market outlook.

Matt Swantek, Iowa State swine program specialist for west central Iowa, will answer questions regarding feed options and discuss feed alternates, and both attendees and presenters will discuss ideas for saving feed and managing herds such as cleaning up disease by closing the herd, streamlining the sow herd size, increase wean age and management of culls and cull strategies.

“Our presenters will share their insight on sale weight adjustment when margin over feed cost is low or negative, and the market is declining because of the seasonal market price,” Stender said.

Local discussion is encouraged with a question and answer session to wrap up the program. Locations for the webinar are in the following ISU Extension and Outreach county offices: Sioux, Cherokee and Carroll in western Iowa; Cass in the southwest; Fayette in the northeast; Mahaska and Washington in the south/southeast; and Humboldt in north central Iowa.

For more information on locations or meeting content, contact any ISU Extension swine program specialist. Find the specialist nearest you.

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Cattle Marketing Decision Tools

Contributed by Lee Schulz, extension livestock economist

Reduced availability of feed and forage has some livestock producers making decisions now they hadn’t originally planned on for their livestock. Two Decision Tool calculators have been developed to aid in decisions regarding the sale and repurchase of cattle. The first spreadsheet, cow sell calculator, compares opportunities for marketing cows now or incurring additional costs to target other (later) markets. It evaluates alternative sale and cost scenarios and estimates the value of targeting other (later) markets. The approach used calculates the value per animal or other assets to generate the same revenue as a sale at an earlier date.

The second spreadsheet, cow repurchase calculator, estimates the costs saved and interest earned on sale proceeds between sale and repurchase date. It evaluates alternative sale, repurchase, and cost scenarios and determines the amount that could be paid for replacement animals. The approach used calculates the sum of interest earned on the proceeds of earlier culling and costs not incurred (e.g., feed, other, etc.) as a result of the sale. Then, the cash that could be available for repurchase, if saved and not used, includes the proceeds from the sale plus the interest earned on those proceeds. Both Ag Decision Maker Decision Tools are available on the Ag Decision Maker website.

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Drought webinar from ISU Extension and Outreach

On July 25, 2012, ISU Extension and Outreach specialists presented a webinar on Crops and Livestock Options During Drought. Links to each portion of the webinar are provided below. For more drought informaiton, visit Dealing with Drought – 2012.

  • Introduction and weather
    • Introduction
    • Current weather and forecast
  • Crops
    • Soybeans: What to look for to monitor yield potential
    • Corn: What to look for to monitor yield potential
    • Diseases and drought
    • Alternative crops for forage, soybeans for forage
  • Cattle management
    • Stretching stressed pastures and CRP hay value
    • Drought stressed corn silage: harvest, storage and feed value
    • Nitrate risk in silage and testing, treatment and other risks
  • Economic considerations
    • Valuing drought stressed silage and logistics of CRP
    • Calculating crop insurance
    • Forward pricing grain and talking to the buyer

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Questions or financial concerns related to drought…

Have questions on financial concerns related to drought, crop insurance, etc.?

Leave a comment with your question and we will find the best experts to answer your questions at Iowa State University. Several commonly asked questions on crop insurance are also available here.

Other options for assistance from ISU Extension and Outreach include: Crops Watch Blog, Iowa Beef Center Blog, Hortline – Call 515-294-3108 (10 a.m. to noon and 1-4:30 p.m., Monday through Friday) or hortline@iastate.edu, Iowa Vegetables blog. Or, call the Iowa Concern Hotline at: 1-800-447-1985. By calling Iowa Concern one has access to an attorney for legal education, stress counselors, and Information and Referral services for a wide variety of topics.

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