1. Extension and Outreach/Department of Economics 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

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

3. Extension and Outreach/Department of Economics Source: NREL

4. Extension and Outreach/Department of Economics Cellulosic Biofuel is a New Market  There is much 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?  To whom will the revenues and costs accrue?

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

6. Extension and Outreach/Department of Economics Producer Challenges ChallengeAverage Rating Nutrient loss5.55 Distance to markets5.52 Long-term biomass market viability5.44 Biomass price volatility5.26 Soil erosion issues5.19 Percent of biomass removed5.13 In-field transport and compaction5.00 Contract opt-out clauses4.99 Contract terms of storage4.93 Residue management4.92 Source: Jarboe, et al. 2011

7. Extension and Outreach/Department of Economics Ag Decision Maker file A1-70, ”Estimating a Value for Corn Stover”

8. Extension and Outreach/Department of Economics 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.

9. Extension and Outreach/Department of Economics 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$11.40 –Raking$ 6.25 –Baling($11.50 / bale x 4 bales/ac)$46.80 –Collecting ($3.75 / bale x 4 bales)$15.00 –Transport (20 mi. @ $.25/mi/bale)$20.00 –Total$99.45/ac.

10. Extension and Outreach/Department of Economics Costs to Seller (variable costs only, including labor) Harvesting costs, $/acre (variable costs) –Chopping stalks$ 9.84 –Raking$ 5.31 –Baling(including twine)$15.21 –Collecting$ 4.25 –Transporting($3.65/ton x 2.5 tons)$ 9.12 –Total$43.73/ac. Based on m.s. thesis by Kevin Peyton, 2012.

11. Extension and Outreach/Department of Economics Nutrient removal per ton of dry matter –5.9 lb. P @ $.48 $ 2.83 –25.0 lb. K @ $.50 $12.50 (ISU Pm 1688) $15.33 / dry ton X 2 tons/acre (dry matter)` $30.66 / acre + harvesting costs (custom) $99.45 / acre Total cost per acre $130.11 Cost per wet ton (2.5 t /acre) $ 52.04 / ton Cost per bale $ 32.53 / bale

12. Extension and Outreach/Department of Economics Nutrient removal per ton of dry matter –5.9 lb. P @ $.48 $ 2.83 –25.0 lb. K @ $.50 $12.50 (ISU Pm 1688) $15.33 / dry ton X 2 tons/acre (dry matter) $30.66 / acre + harvesting costs (variable) $43.73 / acre Total cost per acre $74.39 Cost per wet ton (2.5 t /acre) $29.76 / ton Cost per bale $18.60 / bale

13. Extension and Outreach/Department of Economics 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

14. Extension and Outreach/Department of Economics Bargaining Range Seller’s Buyer’s MinimumMaximum Per wet ton$52.04 to$87.80 Per bale (1,250 lb)$32.53to$54.88

15. Extension and Outreach/Department of Economics 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.

16. Extension and Outreach/Department of Economics Bargaining Range Seller’s Buyer’s MinimumMaximum Per wet ton$52.04to$87.80 Iowa auction prices$56 - $72 Per bale (1,250 lb)$32.53to$54.88 Iowa auction prices$35 - $45

17. Extension and Outreach/Department of Economics 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.

18. Extension and Outreach/Department of Economics Some Guidance on Pricing

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

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

21. Extension and Outreach/Department of Economics Farm Lease: Who Owns the Stover? Iowa Code 562.5A “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.”

22. Extension and Outreach/Department of Economics 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

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