Tales of frustration and confusion are more rule than exception among people who have been on either side of sell/buy transactions for corn silage. A well-designed contract, considering the needs of both buyer and seller, can take some of the sting out of the process.
One major obstacle in buying or selling corn silage, says Ohio State University dairy specialist Bill Weiss, is that the two parties involved usually have completely different mindsets about how to value the crop. Both want to maximize profits. But growers tend to think in terms of dry matter yield per acre, while livestock feeders are mostly concerned with maximizing yield per cow.
“The problem is that those goals are not necessarily compatible,” says Weiss.
The first step in setting up a contract is establishing a base price. Growers need to calculate the dollar value of corn silage relative to alternative crops that could be grown on the same acreage. As a rule of thumb, Weiss suggests multiplying the per-bushel price of corn grain by a factor of 7 to get an idea of the value of a ton of corn silage at 35% dry matter (example: $2.60/bu × 7 = $18.20/ton).
Another approach to setting a base price would be to calculate the likely income from planting an acre for grain and requiring at least the same per-acre income from silage.
Buyers, on the other hand, need to begin their calculations by determining the nutrient value of corn silage compared to other feedstuffs. A good starting point can be found at Ohio State's extension dairy Web site, dairy.osu.edu (Click on Buckeye Dairy News/Dairy Business Resources/Feed/Feed Composition).
These calculations, in turn, will yield a price range that can serve as the starting point for negotiations on base price between buyer and seller.
“The key is to arrive at a price that leaves both the buyer and the seller feeling like they're in a win-win situation,” says Weiss. “If one side feels that they've lost, the relationship won't be sustainable over time.”
As the crop comes off the field, the base price will need to be adjusted to reflect the true nutrient value of the silage. By most accounts, dry matter content is probably the critical nutrient component.
Weiss suggests specifying a dry matter target range of 30-35% for material going into a bunker silo. For upright silos or bag storage, a range of 32-38% is reasonable.
“If it's put up too wet or too dry, quality is going to suffer and it will be worth less to the livestock producer,” says Weiss. “That has to be reflected in the final price.”
Target levels for other quality components — fiber digestibility, energy, crude protein — can be spelled out in the contract as well. But Weiss cautions against getting too specific.
“With fiber digestibility, for example, there's not a lot of difference between material that's 43% and material that's 45%,” he says. “Think in terms of reasonable ranges and make allowances for realistic variability.”
An ongoing, open dialogue between buyer and seller about the importance of quality can help in establishing the target levels. Bill Mahanna, nutritional sciences manager for Pioneer Hi-Bred International, encourages livestock producers to start the process by sitting down with a nutritionist to determine a “fair value” based on quality factors. Those factors should include starch content, fiber digestibility and, if the grower is managing the harvest, degree of kernel damage.
“A grower will focus on tonnage only if that's all he's going to be paid for,” says Mahanna. “Dairymen can encourage quality by providing incentives to the grower for meeting or exceeding target levels.”
Drawing comparisons with how alfalfa hay is priced is one way to bring the point home to growers, adds Mahanna.
“We don't pay the same price for hay with a relative forage quality of 170 that we pay for hay with an RFQ of 120,” he says. “If yield were all that mattered with alfalfa, we'd cut everything at full flower. But we don't. We're willing to take a hit on yield in order to get a higher quality. Valuing corn silage for both yield and quality should be approached in the same way.”
A variety of other factors should also be considered in setting up a contract. These include:
Sampling protocols. A good contract will spell out protocols for sampling the harvested crop. Factors to be considered include how often samples will be taken, which nutrients will be tested for, which lab or labs will be used (there can be significant differences between labs) and who will pay for the sampling.
Hybrid selection. Buyers seeking specific quality traits in corn silage will want a clause in the contract specifying which hybrids will be planted. Weiss cautions, however, that some growers might be reluctant to plant certain specialty varieties.
“Seed costs are often higher and yields can be lower,” he says. “That needs to be considered when price is established.”
Harvest responsibilities. By most accounts, harvesting, transporting and storage costs for a corn silage crop can easily add up to $10-15/ton. The contract should state who is responsible for carrying out specific tasks — buyer, seller or a custom harvester. Price adjustments can then be made accordingly. A 5-10% shrink factor can also be detailed in the contract.
Payment provisions. Selling a silage crop to an individual doesn't offer growers the kind of “assurance of payment” that they've come to expect when selling a grain crop to the local elevator. Contracts should include specific dates on when payment is to be made — so many days after sampling results are received by both parties, for example.