Pricing Corn Silage – Fall 2022

By John Hanchar, NWNY Dairy, Livestock & Field Crops Program

Summary

• Analysis suggests corn silage price depends on corn silage quantities, alfalfa hay price, the price received by farmers for milk, and corn grain price.
• Analysis for NY suggests that estimated corn silage price is most sensitive to corn silage quantities, alfalfa hay price and corn grain price.
• Price estimates combined with understanding of relevant supply and demand factors from an individual farm business owner’s perspective can aid decision making regarding corn silage price. Given recently available alfalfa hay and corn grain prices (April through June, 2022, and August, 2022, respectively), price analysis for NY suggests an estimated corn silage price of about $61 per ton.  The fall 2021 estimate was about $57 per ton.

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 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 prices that achieve the producer’s 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 factors.  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 target.

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.  An ordinary least squares regression model expresses corn silage price as a linear function of the above variables.  The statistical analysis used here is fairly basic.  However, readers of the original and annual update articles note that the analysis and estimates help farm business owners price corn silage.

Corn Silage Price Estimates – Fall 2022

The ordinary least squares regression model reported in August 2012, updated here to reflect additional data available, and changes in other underlying factors, 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 8,279 tons.

• Estimated corn silage price ($/ton) = -6.63197+ (0.19089 x price of alfalfa hay ($/ton)) + (4.34634 x price of corn for grain ($/bushel))

Suppose:

• NY alfalfa hay price is $223 per ton, the three month average of the period April, May, June, 2022. (USDA/NASS.  Agricultural Prices. Washington, DC: National Agricultural Statistics Service.  QuickStats website.  August 10, 2022 access date.), and
• Corn grain price is $5.82 per bushel (Western NY Energy. “Corn Bids.” Website. August 10, 2022 access date.  Approximate value based upon reported bids for fall 2022.)

Using the estimating equation and the above prices for alfalfa hay and corn grain as expected prices, estimated corn silage price is about $61 per ton.  Compare this to last fall’s estimate of about $57 per ton.  Using an expected corn silage quantity of 7,664 tons, about one standard deviation less than the first value, yields a corn silage price estimate of about $65 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, aids decision making regarding corn silage price.