Webinar: Financial Considerations of Forage Purchases (July 23, 2020)

Department of Agricultural Economics Author

07/23/2020 Added

21 Plays

Description

With Robert Tigner, extension educator and agricultural economist, UNL Agricultural Economics. Every year, cattle producers buy forage for their herd. Sometimes — like this year in areas of drought — forage has to be purchased because not enough can be grown. This webinar will lay out the economics of forage sales, hay, haylage and corn silage, for both livestock growers and crop producers. Tools will be demonstrated that can be used to arrive at prices for negotiation.

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[00:00:37.980]Jay Parsons: Good afternoon, everyone.
[00:00:40.080]Jay Parsons: I'm Jane Parsons and extension of farm and ranch Management Specialist at the University of Nebraska, Lincoln and professor in the Department of Agricultural Economics
[00:00:49.140]Jay Parsons: And behalf of the Department, I welcome you to our webinar today. Today, as a part of a weekly series of webinars produced by our farm and ranch management team. You can find recordings of these sessions.
[00:01:00.090]Jay Parsons: And a schedule of upcoming webinars and other resources@farm.ul.edu one resource that we would like to quickly highlight is the Nebraska rule response hotline.
[00:01:14.940]Jay Parsons: In times of stress, knowing when to reach out as essential to Nebraska rule response hotline can provide mental health counseling.
[00:01:22.920]Jay Parsons: Information regarding legal assistance financial clinics mediation and more hotlines toll free number is one 804 640 to five eight. In addition, a wealth of resources and related related distressing wellness can be found at rule wellness.us now.edu
[00:01:45.570]Jay Parsons: During today's webinar, you are welcome to ask questions in the chat box located at the bottom of your screen.
[00:01:51.420]Jay Parsons: We will wait to address these during the question and answer session at the end of the presentation but invite you to submit them at any time during the talk, or at the conclusion of the talk. As we start that Q AMP a session.
[00:02:04.560]Jay Parsons: Now for today's presentation. We are welcome. We are excited to take a closer look at the financial considerations of forge purchases
[00:02:13.860]Jay Parsons: In most years. It is common for many cattle producers across the state of Nebraska to buy forage for their heard at some point.
[00:02:20.310]Jay Parsons: Sometimes like this year we have areas experience and drought. So for each has to be purchased purchased because forge production as well below normal
[00:02:29.580]Jay Parsons: Today's webinar will look at the economics afford sales and purchases sales of hail hail age and corn silence will be considered from the perspective of both the livestock growers and the crop producers.
[00:02:42.780]Jay Parsons: To guide us through this conversation is my colleague and agricultural economics, Robert tickner
[00:02:47.640]Jay Parsons: Robert, is an extension agricultural systems economist who works out of the West Central Research extension and Education Center and North Platte
[00:02:55.680]Jay Parsons: The area to the south into the Western North Platte happens to be experiencing some pretty extreme dry weather right now. And I know Roberts been given this a lot of a lot of thought because he's been getting some questions on it. So I appreciate him taking the time today.
[00:03:09.060]Jay Parsons: To talk about this important topic with that. Robert, I'll turn the floor over to you for your presentation.
[00:03:17.100]Robert Tigner: Thanks, Jay. I'll get
[00:03:20.040]Robert Tigner: Get my presentation shared and we'll get on the way.
[00:03:23.970]And
[00:03:25.800]Robert Tigner: Consider some of these topics will
[00:03:31.860]Robert Tigner: Will beyond just pricing. I'm going to talk about some of the considerations about quality as well and how that figures into
[00:03:41.280]Robert Tigner: Into forge purchases. So pricing forages as Jay mentioned forges are regular purchased by many livestock producers. When I say livestock I include beef producers and dairy as well.
[00:04:00.210]Robert Tigner: In my experience, it's a more regular process or more regular practice for dairy producers to purchase forges on an annual basis with beef producers, it's more an issue of dealing with
[00:04:16.980]Robert Tigner: Shortages that says might be might have been experienced in 2012 when we had a major drought, as well as the dry areas that are showing up on our Drought Monitor here. So what they're trying to do is to replace forges that they normally would have produced
[00:04:39.180]Robert Tigner: The economic risks that this that this purchase has
[00:04:44.820]Robert Tigner: includes several
[00:04:47.340]Robert Tigner: If an inventory is built. For instance, if I were to go and assume that I'm going to have a very short.
[00:04:57.180]Robert Tigner: forage production year purchase quite a lot of forage at the very front end of that I have locked in costs and I have a
[00:05:09.720]Robert Tigner: Maybe
[00:05:11.760]Robert Tigner: Over purchase to forge that I won't need for a while.
[00:05:16.110]Robert Tigner: And I have
[00:05:18.540]Robert Tigner: Possibly overpaid for those for just as well. And that's comes about frequently, however, though, when careful calculation as to the value of forage that's being purchased is not is not done.
[00:05:37.260]Robert Tigner: So what we've done and it without calculating the value of that for each we may have caused those forage conscious costs to push our cash flow down and those costs have become a detriment to our, our finances. So those forage cause also for beef producers have
[00:06:03.720]Robert Tigner: Increased our costs due to the harvest of that for each also including the use of the land that grows that forage that were purchased
[00:06:14.940]Robert Tigner: So we've we have as far as a beef producer. We have both land that we own, and now because forages short, we're going to
[00:06:25.740]Robert Tigner: I'm going to call it rent land for purchase for that forges that we're purchasing. So we've added costs to that beef production cycle that we have a challenge to mitigate them.
[00:06:41.850]Robert Tigner: Other risks are not just financial but they are production risks as well. So forage quality may not be as good as we need it to be.
[00:06:54.390]Robert Tigner: We're talking about low quality forage at that point.
[00:07:00.570]Robert Tigner: For instance, CRP and
[00:07:04.890]Robert Tigner: Various program lands set aside for conservation purposes may be released to a hanging and grazing some of that forage may be a pretty
[00:07:18.000]Robert Tigner: Minimal quality and so that does it meet the livestock needs or nutrition needs. We may have to supplement, if that is very low protein.
[00:07:29.940]Robert Tigner: And if we're a dairy producer, we may end up with lower quality forage that leads to poor milk production. And when that happens, we built in costs that are expenses for our milk production and beef production that are continuing throughout the year.
[00:07:51.960]Robert Tigner: So how do we get to a price that is a reasonable value for the forge that that we're considering to purchase one of the ways to to do that is to utilize
[00:08:05.940]Robert Tigner: A pricing smartphone app that the University, University of Wisconsin published a few years ago, the last updated it about a year and a half ago.
[00:08:18.000]Robert Tigner: This is available for both this this particular app image here is for for Android, but it is available in Apple as well. So we could download this app and utilize it to be.
[00:08:37.140]Robert Tigner: To price for each standing for you so that it is a reasonable price for us.
[00:08:44.700]Robert Tigner: What do we have to know to to to utilize this app here I have an example that is grass as Don alfalfa. Hey, so we're going to look look up possibly look up the
[00:09:00.780]Robert Tigner: USDA NASS AG statistic Service website.
[00:09:05.820]Robert Tigner: This app will point us towards
[00:09:09.720]Robert Tigner: Whatever state has a hey report. Hey price report just click on check prices here i've i've utilized Nebraska's report.
[00:09:20.520]Robert Tigner: And I've clicked on those check prices and I find that non alfalfa. Hey, most recent report indicates it is priced at about $87 average. Well, that's an average of course. So we need to make sure that when we're looking at the NASA Ag Statistics website that we're going to
[00:09:42.930]Robert Tigner: Pull the price from that website that matches the hey type that we're going to purchase. If it's alfalfa or lower quality alfalfa higher quality alfalfa. Make sure you get that the correct hey price there to
[00:10:00.810]Robert Tigner: To enter, you can always enter your own price or a local price that you think a is selling for
[00:10:08.220]Robert Tigner: One of the challenges with averages, is that it doesn't bring in those outliers. There may be locations in Nebraska.
[00:10:17.910]Robert Tigner: That have more than adequate. Hey, and so that average is actually higher than, than the locations sale prices are are at
[00:10:31.080]Robert Tigner: But if it's in a drop location, then that hey price could be at the higher end of the and much higher than the average report so be, be aware that an average is Nick is never going to tell you those specific location prices that may be occurring.
[00:10:52.080]Robert Tigner: Next we need to take on the annual yield estimate. So
[00:11:00.540]Robert Tigner: Okay, so how do we get at a yield estimate on forges that we're buying standing in the field that we don't crop regularly.
[00:11:12.660]Robert Tigner: This there's an estimate that we can make and RCS has has a model that helps us predict predict that. But there's other ways to get at that as well and and several of those are
[00:11:28.710]Robert Tigner: Are on websites that I'm going to go to now.
[00:11:36.900]Robert Tigner: So here's the hey report website for Nass that I was talking about.
[00:11:42.270]Jay Parsons: We have Robert we're gonna we're gonna need to switch the monitor or something because we're still seeing your PowerPoint slides. Okay.
[00:11:50.700]Robert Tigner: Yeah, that happens doesn't it.
[00:12:02.430]Robert Tigner: Got it now.
[00:12:04.200]Jay Parsons: And now we're just seeing her pictures.
[00:12:05.940]Robert Tigner: Okay, we'll get it up here.
[00:12:07.110]Jay Parsons: Again, after reshare. Yep.
[00:12:11.190]Robert Tigner: Okay, now we should be good.
[00:12:13.530]Robert Tigner: You're good. So here's the hey ox reports, I'll just go through all of these so that
[00:12:18.930]Robert Tigner: We don't have to do that again.
[00:12:21.390]Robert Tigner: So here's the Nass hey
[00:12:24.810]Robert Tigner: Pay reports, there are locations as well as a state reports that we can get at
[00:12:33.090]Robert Tigner: And so those are the locations for an average across the state.
[00:12:40.440]Robert Tigner: If we want to get at.
[00:12:45.900]Robert Tigner: The wrong one. There we go. If we want to get at trying to estimate infield yields.
[00:12:53.760]Robert Tigner: This publication by Canada. There's another one around. But it gives you a procedure that will sample infield not only pasture, but it will sample infield hey ground that you're going to
[00:13:11.520]Robert Tigner: Going to forge going to bias forage so we we had we do some clips we know we have a known area that we're clipping and then we can weigh that and and then we have a way to get out of what is actually
[00:13:31.830]Robert Tigner: The yield for the field that we're attempting to to purchase or consider this is important because we don't want to overpay as a producer. We don't want to overpay for cutting of hay that isn't going to yield what we think it is. And conversely, if we are a a
[00:13:54.090]Robert Tigner: grower. We want to get paid for all that, hey, that is being harvested.
[00:14:03.240]Robert Tigner: So I'm going to also mention a little bit later in the slides at that we're going to use the
[00:14:10.170]Robert Tigner: Nebraska farm custom rates as machinery rates and that is located at farm ul.edu
[00:14:20.940]Robert Tigner: I'm also going to mention a machinery cost for producers, they don't have their own machinery costs one place to do that is at a website that I was state put together some years ago estimating farm machinery costs. That's an important
[00:14:38.820]Robert Tigner: Part of it as well.
[00:14:42.180]Robert Tigner: And then Kansas State has
[00:14:45.180]Robert Tigner: Some websites that are interest as well. All these websites are on my notes section for the PowerPoint and we'll be posting that a little bit later as well.
[00:14:57.870]Robert Tigner: So now let's go back to
[00:15:01.890]Robert Tigner: The PowerPoint.
[00:15:16.470]Robert Tigner: Are you good there. Jay,
[00:15:18.540]Jay Parsons: Now we're still seeing your web browser. I think you're gonna have to
[00:15:22.620]Jay Parsons: Maybe stop share and reshare
[00:15:24.900]No.
[00:15:27.690]Robert Tigner: Okay, here we go.
[00:15:33.360]Jay Parsons: Okay, you're good.
[00:15:34.650]Robert Tigner: All right.
[00:15:39.150]Robert Tigner: So,
[00:15:40.920]Robert Tigner: Now we have the
[00:15:42.600]Robert Tigner: Yield estimate because we've gone out there. And we've actually measured what the yield is. And so that's my point about this annual yield estimate if we're using forages other than
[00:15:57.270]Robert Tigner: Than
[00:15:58.890]Robert Tigner: Alfalfa that has maybe one cut
[00:16:04.200]Robert Tigner: Then we can adjust this annual yield estimate 2321 cuttings as well with this, with this app, we can adjust this
[00:16:15.660]Robert Tigner: Because it's important for us if we're only buying one or another cutting of forages to know how much yield is expected for that that particular cutting. So, this
[00:16:32.370]Robert Tigner: Yield estimate will change the amount of yield expected during each cutting. So if I have a four and a half tons of expected
[00:16:43.500]Robert Tigner: For the total yield and the and I have four cuttings instead of three. In this example, then we'll end up with about a 38% 35 to 38% yield for the first cutting and if that's the only one. I'm I'm I'm purchasing. That is the amount of force that will be priced during this using this app.
[00:17:11.970]Robert Tigner: So what about harvest costs. Well, we are going to think about this as either large round bales.
[00:17:23.190]Robert Tigner: Small, small square bales. I don't see anybody doing that much anymore except in very unusual circumstances or as chopped a large square square bales are usually commercially made for someone to sell to for instance.
[00:17:41.700]Robert Tigner: The dairy industry, very common usage of large square bales.
[00:17:47.880]Robert Tigner: Do we know what our, our, our harvest costs are. However, if we're going to be the one that goes to to make that harvest make that for each
[00:17:57.060]Robert Tigner: We need to know what that harvest cost is because we're buying standing forage not already harvested for it. We're going to buy standing forge those harvest costs are going to vary, they're going to vary around
[00:18:11.820]Robert Tigner: Several different things. Are we going to have a custom harvester come in there and and and harvest for us, are we going to do those for each harvest operations ourself.
[00:18:26.430]Robert Tigner: It is not unusual to have custom harvest or
[00:18:33.150]Robert Tigner: Custom harvest prices as was showing and in this custom harvest or custom rate survey that you and l does every other year to be lower than a full cost of
[00:18:48.780]Robert Tigner: Ownership of machinery that's not at all unusual. So you would in if you use those custom rates as your harvest costs be fully aware that you're probably not.
[00:19:04.800]Robert Tigner: Pricing machinery costs at as high.
[00:19:09.660]Robert Tigner: An amount as you'd likely would really have
[00:19:14.310]Robert Tigner: I hope I explained that clearly enough
[00:19:17.640]Robert Tigner: What we find is that that custom rates usually don't repay the custom operator fully for their investment. Now, if I'm a business that's a different story. I probably have a very good handle on my costs and I'm going to recapture fully my cost of of
[00:19:41.460]Robert Tigner: Of those harvest operations. But in any case, I can enter that my harvest costs there. And that's an important part of pricing.
[00:19:51.900]Robert Tigner: What about a weather risk there is weather risk.
[00:19:56.280]Robert Tigner: And some of that whether risk. If you look towards research has recently been completed that weather risk is has very high
[00:20:10.050]Robert Tigner: Reduction of TD and or dry matter or protein.
[00:20:15.420]Robert Tigner: So that
[00:20:17.250]Robert Tigner: Who's going to stand that whether risk that's a consideration that
[00:20:22.590]Robert Tigner: I as a crop producer, for instance, would think
[00:20:27.480]Robert Tigner: That's not my cost that is something that the buyer of the forage should cost or should be standing. So it's an optional cost, but be well aware that harvest. There's weather risk here and there's going to be feel laws so that needs to be considered in this pricing as well.
[00:20:50.550]Robert Tigner: So some other points about this. These harvest costs that I was alluding to earlier, you have Illinois survey showed that machinery costs were as much as 30% higher than customer rates.
[00:21:07.140]Robert Tigner: There's a cost to having a custom operator is
[00:21:12.150]Robert Tigner: The some of that cost is timeliness.
[00:21:15.570]Robert Tigner: As Jay and I were talking about earlier. Sometimes people have held their, their machinery for instance a combine, even though they almost always have a custom harvesters come in.
[00:21:30.270]Robert Tigner: And sometimes they have their own equipment as a backup when the custom harvester doesn't come in on time.
[00:21:39.840]Robert Tigner: Or can't make it there for some reason.
[00:21:43.290]Robert Tigner: Timeliness is a very important consideration for forage quality when it comes to dairy operators and
[00:21:52.590]Robert Tigner: But it's also an important consideration for people if the weather terms and we start to for instance.
[00:22:04.260]Robert Tigner: Hail comes along and we get a severe hail event and we haven't harvested that forage that we've already purchased and we've lost a lot of that forage.
[00:22:17.130]Robert Tigner: So,
[00:22:19.050]Robert Tigner: One of the things that
[00:22:21.750]Robert Tigner: producers have to think about is
[00:22:24.810]Robert Tigner: Is their risk is there whether risk so so great that they are going to own their own machinery and take that a little bit higher cost into consideration and be willing to bear that because they are
[00:22:41.970]Robert Tigner: They are likely to have better quality forage with their own machinery.
[00:22:49.230]Robert Tigner: So then
[00:22:51.000]Robert Tigner: This last risk. I've already mentioned what we do, what, what happens then is this
[00:22:58.260]Robert Tigner: This area down below.
[00:23:00.750]Robert Tigner: The blue bar estimated annual standing. Hey value is calculated
[00:23:06.360]Robert Tigner: But you have to hit calculate before you're going to see that so you'll enter all your data hit calculate and then you'll see that those calculations by crop.
[00:23:20.400]Robert Tigner: So the, the full year's value.
[00:23:25.290]Robert Tigner: Total hires value of this as for each if it were to be harvested at and then sold as forage will be four and $50 for subtracting $195 AS THE TOTAL HARVEST costs.
[00:23:40.140]Robert Tigner: we're subtracting off of weather risk and we're subtracting off a field loss risk. Remember the weather loss and feel laws are optional.
[00:23:50.820]Robert Tigner: And they probably should be stood by the person that's doing the harvesting the purchasing that forage rather than the crop producer. So in this example, we get end up with a standing value of $188
[00:24:06.690]Robert Tigner: For grass, a
[00:24:10.080]Robert Tigner: First crop is $81 the second crop would be $58 and the third crop at $49. So this is a fairly easy and quick way to calculate possible bid prices.
[00:24:25.260]Robert Tigner: Either from from the buyers point of view, but it's also an easy way to calculate what a crop producer might expect for the forage that they're going to sell somebody
[00:24:42.600]Robert Tigner: So I'm I've mentioned this a little bit earlier. And that's losses of dry matter from second cutting or from excuse me from from forages
[00:24:53.190]Robert Tigner: This is going to vary by timing of that of that rainfall event.
[00:25:02.820]Robert Tigner: So that's another consideration. People need to take into account when they're thinking when they're buying that for each quality.
[00:25:10.890]Robert Tigner: Other hey types just adjust your forage type just the price to the correct for each type and adjust the number of cuttings. I mentioned this earlier, if it's oats or metal. Hey there may only be one.
[00:25:26.850]Robert Tigner: Maybe two cuttings. So you adjust that website to the number of cuttings that you would expect.
[00:25:36.210]Robert Tigner: But what about corn size corn sides is a very common purchased
[00:25:42.300]Robert Tigner: By livestock producers.
[00:25:45.570]Robert Tigner: But there's two different perspectives to these purchases
[00:25:50.580]Robert Tigner: One, the crop producer side to the livestock producer side.
[00:25:58.260]Robert Tigner: There is feed value.
[00:26:00.840]Robert Tigner: To all this and this is a normal distribution of feed value for for corn salad. The normal would be you would expect something like 68% tdnn good protein, about eight a little bit above eight at F and n DF are pretty good.
[00:26:22.650]Robert Tigner: The longer it matures the lower that tdnn is going to go. Go and pro crude protein as well. But on the other side immature corn four cyl age and I'll get to the reason I'm bringing up this immature.
[00:26:39.870]Robert Tigner: Is that it's still pretty good quality.
[00:26:44.820]Robert Tigner: And this may be, this may be related to drought.
[00:26:50.820]Robert Tigner: When we price that corn for drought. So as an example, calculation here.
[00:26:58.200]Robert Tigner: How do I come up with a value for the buyer. Well, here's an example of 225 bushel per acre corn that would expect to yield about 30 tons of corn size I 60 65% moisture. So the grain portion of this is about $3 and 25 cents for that's a little higher than today's price.
[00:27:26.940]Robert Tigner: Times $225 we've got $650 worth of grain. If it were to be harvest and delivered to to a grain elevator.
[00:27:38.130]Robert Tigner: The cost for the livestock producer.
[00:27:41.790]Robert Tigner: We're going to subtract that off though of that $650 the bat is going to be 80 bucks that they're going to harvest as corn silage and transported
[00:27:55.350]Robert Tigner: That equals 560 $570 of value because they're going to do that harvest operation.
[00:28:04.980]Robert Tigner: The Stover itself, not the grain portion to Stover represents about four and a half tons of grass hay equivalent. And that's at $80. This is $357 and 60 cents of value to that producer.
[00:28:24.480]Robert Tigner: So these costs for the livestock producer for the forage portion of that corn salad is
[00:28:35.910]Robert Tigner: $357 and 60 cents minus harvest and transportation
[00:28:42.450]Robert Tigner: That leaves $241 and 60 cents.
[00:28:46.890]Robert Tigner: So when we totaled those net value to the buyer.
[00:28:53.010]Robert Tigner: They have about $811 and 60 cents or $27 and five cents. Now there's a debate about whether or not we should subtract off that that last portion for a harvest of Stover if we don't, subtract that off the value would be about $30 and 70 cents per ton of corn side at 65% moisture
[00:29:24.270]Robert Tigner: That calculates out to about seven and a half times
[00:29:30.390]Robert Tigner: The three and a quarter.
[00:29:33.300]Robert Tigner: Grain price that we used in at the front end to calculate the grains value.
[00:29:39.990]Robert Tigner: That's, that's real close to the thumb rule, and I'll get to that a little bit that we've almost always used lately for corn salvage value standing in the field.
[00:29:56.010]Robert Tigner: What about the grower value.
[00:29:58.620]Robert Tigner: Well, the grower has again.
[00:30:02.850]Robert Tigner: 225 bushels.
[00:30:05.310]Robert Tigner: They're going to have the same value $650
[00:30:11.160]Robert Tigner: They've avoided several costs, these are related to combine cost driving costs and transportation of that grain itself.
[00:30:21.360]Robert Tigner: So we have $650 of value standing in the field minus $80 we have $570 value standing in the field, but that grower
[00:30:33.000]Robert Tigner: Is going to lose the fertilizer value of that Stover that's removed. Okay, so that value approximately $120 and fertilizer value. We've got to add that into the 570 so that's that $690 of value standing in the field or $23 a ton.
[00:30:55.620]Robert Tigner: So that minimum bid for the crop Gordon take would be at least $23 per time, anything above that is a is a greater benefit to that.
[00:31:09.930]Robert Tigner: grower corn grower
[00:31:13.230]Robert Tigner: That than if he were or she were to combine and sell as grain.
[00:31:20.760]Robert Tigner: So there's a range here between which
[00:31:26.820]Robert Tigner: The grower and the livestock buyer can negotiate.
[00:31:31.830]Robert Tigner: The maximum value. I said, depending upon
[00:31:35.220]Robert Tigner: Whether we include harvest costs for Stover for the livestock producers around $27 to $30 the minimum bid that the crop grower would want is $23 that's the range of negotiation.
[00:31:53.130]Robert Tigner: The economic negotiation was in which
[00:31:56.790]Robert Tigner: Those two parties would would make their price eventually
[00:32:04.110]Robert Tigner: So are there easier calculations. Oh, well, yeah.
[00:32:08.670]Robert Tigner: For the
[00:32:10.980]Robert Tigner: For the signage pricing.
[00:32:14.010]Robert Tigner: Instead of going through all that well I was state AG decision maker does have a corn sized price or, as does Kansas State, you'll see that one here in a little bit.
[00:32:27.420]Robert Tigner: Both of them look at
[00:32:31.110]Robert Tigner: each party's interest in the in the corn sized growing
[00:32:36.990]Robert Tigner: Either as a buyer livestock buyer livestock producer and corn grower
[00:32:46.560]Robert Tigner: The advantage to the Kansas State spreadsheet is that it also includes
[00:32:54.360]Robert Tigner: Mile
[00:32:56.580]Robert Tigner: Or grain sorghum
[00:32:58.560]Robert Tigner: Sometimes that's made into into forage as well not not frequently in Nebraska, but the advantage that it has. It also is that it has
[00:33:11.790]Robert Tigner: two very distinct tabs, which shows the owners, the crop Corps perspective and the buyer's perspective, those same calculations that I went through and the example are
[00:33:26.040]Robert Tigner: In this spreadsheet as well. And it, it will calculate for you, those
[00:33:33.150]Robert Tigner: Prices that we just went through as the example.
[00:33:38.250]Robert Tigner: So these pricing thumb rules that I I alluded to.
[00:33:42.810]Robert Tigner: We've over the years used
[00:33:46.530]Robert Tigner: These some roles as unharvested six to eight times the price of corn.
[00:33:52.980]Robert Tigner: That varies right now at over $6 per ton and as high as $150 an acre. The thumb rule has that much variation, depending upon how much
[00:34:08.160]Robert Tigner: Whether we use the six or the eight times the price of corn.
[00:34:12.630]Robert Tigner: $150 an acre.
[00:34:15.660]Robert Tigner: The thumb rule. We've used over the years 10 to 12 times price of corn. If it's harvested and delivered to a a feedlot or bunker location, something like that has been 10 to 12 times again that's $150 variation and
[00:34:38.160]Robert Tigner: In the price a crop producer would either get or the livestock and dairy would pay to that crop producer. So this is an important
[00:34:49.980]Robert Tigner: To understand that some rules have real serious consequences if we choose the wrong one.
[00:35:00.630]Robert Tigner: And here's why we might choose the wrong one. One of the reasons and in any case.
[00:35:08.520]Robert Tigner: This is some Research from University of Wisconsin Arlington, Wisconsin. Okay, now a little bit about that area. It is an irrigated area.
[00:35:20.310]Robert Tigner: Because of its sandy soils. It has high variation in in yields without irrigation.
[00:35:29.850]Robert Tigner: So in in 2004 the variation in bushels of corn per
[00:35:39.240]Robert Tigner: Ton of corn sides was anywhere from 3.2 bushels of grain up to 6.9 bushels of grain. So which thumb rule should we use if we use that seven times.
[00:35:54.240]Robert Tigner: And we end, end up with 50 bushel yields for the corn size that we're cutting we're way overpaying aren't we
[00:36:05.700]Robert Tigner: In other cases, we may have for instance the year above that 50 bushel of corn had nine bushels of grain per ton of corn salad.
[00:36:19.680]Robert Tigner: So, these, these thumb rules can be highly inaccurate.
[00:36:25.500]Robert Tigner: And and we need to
[00:36:28.770]Robert Tigner: Be take care with using them.
[00:36:33.630]Robert Tigner: Normal fee value.
[00:36:36.630]Robert Tigner: Is expected, but it will vary.
[00:36:41.670]Robert Tigner: Some of this feed some of this normal the feed value of normal corn salad, you would expect it to be.
[00:36:50.670]Robert Tigner: Very good. If you have an excess of of around 40 to 50 bushels. But even drought stressed barren stocks do have feed value and can be utilized as as silent or forage for
[00:37:07.710]Robert Tigner: livestock producers, but we need to understand the feed value reduction to price it according to that feed value of the drought stress corn.
[00:37:22.800]Robert Tigner: So in drought stress corn. We I've already made those points. Sorry, I tend to talk in front of my slides. That's not unusual for me. So the final details here pricing.
[00:37:39.600]Robert Tigner: How do we come up with a with a price for corn.
[00:37:43.770]Robert Tigner: That's negotiable between the parties as well. Average pricing has its challenges, or excuse me, a price in at a point in time has its challenges because as a crop producer. I could have been making
[00:38:00.390]Robert Tigner: Sales at different points along the way. So maybe what we're they're going to choose is a an average pricing scheme, rather than a single point in time.
[00:38:12.840]Robert Tigner: It is advantageous to a livestock producers to choose that that point in time, which might be harvest. Usually that's the lowest price point of every year.
[00:38:24.540]Robert Tigner: It would be more it would be advantageous to the crop producer to pick some time, you know, June, July, when we usually have higher prices. So maybe the, the, the point of pricing should be an average threw out the growing season so that both parties have a chance to to have an
[00:38:53.460]Robert Tigner: An an accurate representation of pricing opportunities.
[00:38:59.460]Robert Tigner: So we can get those from the local elevator and we can get those from a state NASA reports as well.
[00:39:07.140]Robert Tigner: And as I've mentioned, I think, earlier I preferred away.
[00:39:15.030]Robert Tigner: Rather than guess at yields, certainly in corn salad. I want to do that as well as in hey
[00:39:24.390]Robert Tigner: Most areas most
[00:39:27.150]Robert Tigner: Large feedlots have a scale someplace.
[00:39:31.800]Robert Tigner: That's a little more challenging for small operator, but my preference is the way because I want to know what I'm getting if I'm the buyer and I want to be paid for everything that I'm selling if I'm that that grower
[00:39:48.450]Robert Tigner: Here's several resources that that are available. If you want more information about
[00:39:55.890]Robert Tigner: The
[00:39:58.020]Robert Tigner: app that I showed here a little bit earlier. That's at those two bottom websites that are at the University of Wisconsin web
[00:40:11.010]Robert Tigner: Web pages.
[00:40:13.380]Robert Tigner: So I guess at this point I'm I'm ready for questions.
[00:40:18.090]Robert Tigner: And I'm going to stop my share and see if we've got questions.
[00:40:24.360]Jay Parsons: Hey. Thanks, Robert. Um, so, just a reminder, if you'd like to ask questions, you can type them into the chat box or the Q AMP a box either one down at the bottom.
[00:40:33.810]Jay Parsons: And I will feed those and moderate those questions to Robert for answering. We didn't have a couple of questions come in during your talk. One of them was
[00:40:43.710]Jay Parsons: Back when you're talking about the hey pricing in particular, how do they take into account their ability to store. Hey, specifically, is that a waste of money to buy high quality. Hey, if you don't have high quality storage facilities.
[00:41:00.060]Jay Parsons: Any comments on the storage question because you talked about stockpiling hey I think he's with the thought was there.
[00:41:06.870]Robert Tigner: Yeah, yeah, I'm going to refer that to to somebody else.
[00:41:14.460]Robert Tigner: Okay, I'll explain a little bit of my thinking behind that I used to be more of a generalist and Ag Economist,
[00:41:21.660]Robert Tigner: And I would have those kinds of pieces of information at my
[00:41:27.450]Robert Tigner: At hand if I were a dairy producer again. That was my career before extension if I were a dairy producer and I were purchasing a high quality. Hey, and I lived in a wet area.
[00:41:44.250]Robert Tigner: Some place like
[00:41:46.890]Robert Tigner: Like Wisconsin or I did farm okay dairy farm. If I were back in Wisconsin. And it was wet, I would, I would probably be
[00:41:58.740]Robert Tigner: Hat, I would have that
[00:42:00.270]Robert Tigner: Under storage you know the the the damage and loss to me as a dairy producer is very high.
[00:42:09.390]Robert Tigner: If I'm a beef producer.
[00:42:12.180]Robert Tigner: And I'm located in Imperial
[00:42:15.360]Robert Tigner: And my my losses to to to dry matter is probably much reduced and so storage outside probably makes sense.
[00:42:28.770]Robert Tigner: There, there is more, there is more cost of feed loss than we we we understand that we take into consideration and and i that needs to be better elucidated, I think, than we have today.
[00:42:45.240]Robert Tigner: I don't know if I've answered my question. I'm that question. I'm trying to try and not to be specific, because that's not my expertise any longer.
[00:42:57.180]Robert Tigner: Okay.
[00:42:57.720]Jay Parsons: Fair enough. And I think they were just they realized it was a little beyond you know what's in the field question, but certainly taking into account some that loss that occurs after you actually get it on your farm.
[00:43:09.630]Jay Parsons: So the other question along well I guess similar, but had to do with risk and someone noticed when you were looking at the for each other side Leech, in particular the silo each harvest
[00:43:21.180]Jay Parsons: Producers perspective versus grower perspective in there, they noticed that you didn't have risk in there.
[00:43:28.950]Jay Parsons: In terms of because you had the last they mentioned you had the loss weather and feel lost risk on the hey
[00:43:36.180]Jay Parsons: But didn't include it in the silence discussion. So the question was, is risk minimal does it balance out or how should that be considered in the signage equations, any comments on that.
[00:43:47.910]Robert Tigner: Okay.
[00:43:48.420]Robert Tigner: So it depends.
[00:43:50.310]Robert Tigner: I think on the timing of the purchase if I'm, if, if I am purchasing corn silage at
[00:43:58.980]Robert Tigner: Half milk line, for instance, which is pretty typical for for
[00:44:05.040]Robert Tigner: A dairy producer or black layer somewhere in that range is going to be corn salad made in corn size if I'm, if corn is at that point of
[00:44:17.430]Robert Tigner: Half milk line or black layer.
[00:44:20.190]Robert Tigner: And I'm actually
[00:44:21.210]Robert Tigner: Purchasing right
[00:44:22.230]Robert Tigner: Then and there my risk is pretty minimal and and i'm purchasing it. So if I'm, if I'm the purchaser. At that point, I'm going to be cutting that courtside very soon. There is some risk there is going to be some weather risk.
[00:44:41.580]Robert Tigner: Frost weather risk at that point is is not a major consideration. I don't think as for pricing purposes and and i don't think whether risk should
[00:44:54.240]Robert Tigner: Probably be too much of a of a cost. There's going to be yours. Okay, when it is going to be a risk and we might have two or three weeks of of rain.
[00:45:07.020]Robert Tigner: Happen. And then we have a problem with trying to make corsage then
[00:45:11.580]Robert Tigner: But
[00:45:13.470]Robert Tigner: I don't think there's a large amount of risk if I'm making the purchase right then I am getting ready to harvest. However, if right now. I know that I'm going to
[00:45:26.220]Robert Tigner: Do by corn salad, and I am working with somebody to purchase it. Now then, I do have more risk, don't I
[00:45:36.870]Robert Tigner: I HAVE SOME HAIL risk. I have some weather risk if it's dry land corn, then I have some Phil risk on the ears. I have maybe if it hasn't pollinated. Now then, I have some risk of poor pollination and I don't get the tonnage that I might expect.
[00:45:58.080]Robert Tigner: So I, I think you have to balance your thinking of risk.
[00:46:04.560]Robert Tigner: For corn salad dependent upon the timing of the purchase that is being made.
[00:46:11.130]Robert Tigner: I don't have any thumb rules for how much that risk might be, I think, an agronomist would be somebody that you would consult with
[00:46:22.440]Robert Tigner: For that risk. Now,
[00:46:26.610]Robert Tigner: Reducing that risk.
[00:46:29.520]Robert Tigner: If I buy it. Now, one of the ways I do that is by way I want away this stuff because if I have a hail event and it damages.
[00:46:41.100]Robert Tigner: Those
[00:46:44.280]Robert Tigner: Those corn stocks. I'm going to lose. So my quality because I'm going to lose leaves and I'm going to lose some grain. So I'm going, I'm going to have to think about that.
[00:46:57.120]Robert Tigner: And
[00:46:59.670]Robert Tigner: And way that tonnage coming off of that field because
[00:47:06.090]Robert Tigner: I want to buy it by the ton at that point.
[00:47:11.040]Robert Tigner: Rather than by the acre.
[00:47:15.720]Jay Parsons: Okay fit. So if I'm following up on my own here.
[00:47:21.450]Jay Parsons: So for the crop is that we're addressing the crop producer from that perspective, too, in terms of their risk yield because you mentioned the leaves and some great
[00:47:29.190]Robert Tigner: Yeah yeah it most crop producers certainly have have crop insurance. Don't they
[00:47:35.070]Robert Tigner: And so, so their risk at making that sale is as much reduced through crop insurance but a livestock producers, is what I'm thinking about when I am when I'm talking about
[00:47:49.800]Robert Tigner: The timing of the sale.
[00:47:52.860]Robert Tigner: And whether or not I buy that early or or near the harvest
[00:47:59.190]Jay Parsons: Thanks.
[00:48:01.350]Jay Parsons: Okay, so I don't see any other questions coming in during the Q and A piece here. So if anybody does have a question, feel free to just type them in there and you know address those to Robert
[00:48:15.750]Jay Parsons: Robert, do you have any other thing you want to add to your
[00:48:19.560]Jay Parsons: At the end here before I go, cuz if not, I'm going to go ahead and move into our program announcements any summary comments on
[00:48:28.230]Jay Parsons: Where we're at this year particular
[00:48:31.500]Robert Tigner: Yeah.
[00:48:33.150]Robert Tigner: I don't you know
[00:48:34.710]Robert Tigner: Okay, I'm located down here in in mccook and until about a week and a half, two weeks ago, we were sure we were going to go into d to, you know, and, and we're gonna open up a CRP and for hanging and and grays and we've had some recent brains and that's helped a lot.
[00:48:59.220]Robert Tigner: But we're going to have a time period. Again, when we're going to have to be making periods of of forge purchases my
[00:49:10.500]Robert Tigner: My topic here is to try to get everybody to think about managing that purchase.
[00:49:17.490]Robert Tigner: Don't do it off the cuff because you've locked in costs and without cow careful calculation of the right price.
[00:49:30.420]Jay Parsons: Okay, thank you. And I don't see any other questions coming in. So I'll just
[00:49:34.950]Jay Parsons: stop there and take. Thank you, Robert for your presentation, and thank you everyone for for joining us here today and in especially to those that submitted questions that really helps at the end.
[00:49:44.640]Jay Parsons: With the discussion and stuff. A recording of this webinar will be posted at farm ul.edu where you can also register for upcoming webinars.
[00:49:54.540]Jay Parsons: That we've been holding on Thursday, so be sure to check that out.
[00:49:58.470]Jay Parsons: As a reminder, check farm ul.edu for scheduled more webinars centered around farm and ranch management series continues next Thursday at noon with an overview of the newly released 2020 Nebraska farm custom rates report.
[00:50:12.090]Jay Parsons: Robert refer to that in his talk. We do that every, every two years. So the last one was in 2018 so we got a new one out for 2020 that was just released and we'll discuss that. Next, Next Thursday on the 30th OF JULY at noon, so be sure to join us then.
[00:50:27.960]Jay Parsons: You will also receive a short 32nd survey in your email for today's webinar. We really appreciate any feedback you have on today's webinar.
[00:50:36.330]Jay Parsons: And we especially really appreciate any input you have or ideas you have for future webinars that we could hold. We're always looking for good ideas and good speaker so please feel free to
[00:50:47.160]Jay Parsons: Pipe up and let us know about those because we're all about getting information out to producers and helping them out so
[00:50:53.520]Jay Parsons: With that. Robert, thanks again for your presentation. And thank you all for joining us and on behalf of the Department of Agricultural Economics is University, Nebraska, Lincoln. I thank everybody for joining us today.

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Webinar: Financial Considerations of Forage Purchases (July 23, 2020)

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