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Estimated Costs for Production, Storage and Transportation of Switchgrass

File A1-22
Written February, 2008

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The bioeconomy is the focus of research and discussion as a way to reduce dependence on imported oil, provide some relief from green house gas emissions and increase the use of agricultural products. Biofuels are a significant component of the bioeconomy. Ethanol and biodiesel are the primary biofuels used today.

In the United States, ethanol is primarily produced from corn. However, there is a considerable amount of research and development occurring to develop the capability to produce ethanol from cellulous material.

Switchgrass is one of the major plants considered in discussions of cellulous ethanol. Switchgrass (Panicum virgatum L.) is a perennial warm-season grass native to Iowa. In the past, it has been evaluated as an energy crop but primarily to replace coal. Using switchgrass to produce ethanol is a new use.

This report updates earlier production cost estimates for switchgrass. The earlier estimations were completed as a part of the study using switchgrass to replace coal. This information is available in Iowa State University (ISU) Extension publication Costs of Producing Switchgrass for Biomass in Southern Iowa, PM 1866). For more information on the agronomic aspects of switchgrass production, see the ISU Extension publication Switchgrass (AG 200).

The estimated costs of production are presented here in two sections. The first is the estimated costs. This is followed by a discussion of what could happen if we change the initial assumptions used to estimate the costs. Switchgrass costs are presented in three categories. The first is the production costs, which include establishment, reseeding and annual production. Next are the transportation costs; the final cost category considered here is storage.

Production Establishment

We make several assumptions based on 2001 research findings, with costs updates using 2007 estimates. The Information File 2007 Iowa Farm Custom Rate Survey was used to compute machinery costs. Other costs come from the Information File Estimated Costs of Crop Production in Iowa - 2007. Seed and chemical prices come from expert opinion.

Assumptions
(Note that these assumptions will be relaxed later, but they are used for the illustration that follows)

  • The switchgrass is frost-seeded with a 25 percent probability of needing to reseed the stand
  • The land charge assumed is $80 per acre
  • Switchgrass yield is 4 tons per acre
  • The switchgrass stand is assumed to last 11 years
  • The reseed is assumed to last 10 years
  • The interest rate used for prorating the establishment costs is 8 percent, while the operating interest rate is 9 percent
  • Operating costs are assumed to be borrowed for six months
  • The field is initially prepared by adding phosphorous and potassium. There is also an application of lime assumed.

Table 1

It is assumed that a field needs to be reseeded 25 percent of the time. Basic ground preparation and lime are not included for the reseeding.

Table 2

Assumptions

  • A 4 ton per acre yield.
  • 100 pounds of nitrogen (N) is used. The herbicides listed are examples. Phosphorus and potassium are at removal rates.
  • Harvesting is done in mid to late November. It will be mowed, raked and baled, using a large square baler. Bales are 3x4x8 feet, with a weight of 950 pounds.
  • The bottom of Table 3 also presents the total estimated costs for producing switchgrass. Production costs are the sum of the establishment costs, the prorated reseeding costs and the annual production costs.

Table 3

Storage

Previous studies estimated the costs for storing switchgrass. The options considered include storing in: an open field, an open field on crushed rock covered with a tarp, an enclosed structure, and a pole building with open sides. These studies found that the enclosed building is the most expensive type of storage, but, because maintaining quality of switchgrass is very important for ethanol production, it is the method selected here. (Note that if switchgrass is used as a coal replacement, the quality consideration is not as critical and another storage option might be considered.)

The costs of storing include not only the cost for the facility or method used but also include the value of the switchgrass in storage and dry matter loss associated with the various storage methods.

The estimated storage costs are presented in Table 4 for an enclosed building. (These cost assumptions are relaxed in later discussions.)

Table 4

Since there are various types of enclosed buildings, we make several assumptions.

Assumptions

  • The structure is a tarped hoop type structure and holds 5,454 bales or 2,591 tons.
  • Assume a cost of $12 per square foot for the finished building.
  • Dimensions are 100x300 feet (30,000 square feet).
  • The bales weigh 950 pounds or 0.475 tons and are 3x4x8 feet.
  • The bales are stacked 20 feet high or six bales high.
  • The building and area are assumed to take two acres. The extra space is for building edging, driveways and turnaround space for semi-trucks.

One issue that is not addressed is who owns the switchgrass while it is in storage. This aspect of the cost of production has not been decided. Therefore, we chose not to estimate it. There are at least two major costs that are not considered because of this decision. First, there is the value of the switchgrass over the time it is in storage. Second, and perhaps more important, is the insurance for the switchgrass and building. Storing this much dry hay could create a fire hazard.

Transportation and Handling

Transportation and storage logistics will vary depending on the situation, so again, we make some assumptions.

Assumptions

  • For these estimates, the switchgrass bales are staged along the edge of the field. This cost is included in the production budget. A farmer with a typical tractor and bale fork can perform these duties.
  • Another transportation cost is collecting, delivering and unloading the bales into a storage facility. A semi-trailer holding 20 tons (or 42 bales) is used to haul the switchgrass. Estimated times are 30 minutes to load the truck and 20 minutes to unload. The charge for the semi is $70 per hour.
  • A typical tractor and bale hauler will not work to stack large square bales 20 feet high. More specialized equipment is needed for this task. Estimated costs of such a tractor were $20 per hour and $10.78 worth of fuel per hour. The operator charge is $12 per hour.

Table 5 shows the estimated transportation costs. These are shown in two categories; field to storage (5-mile trip) and storage to plant (30-mile trip). It is assumed that the unloading will be done at the plant at plant expense.

Table 5

There are two comments regarding these cost estimates. The loading and travel time to take the semi from field to field and then to a storage facility may be underestimated. It is possible, too, that if enough farmers raise switchgrass, they can haul it to the facilities themselves. This would change the cost estimates. However, the estimates used here present the opinions of several farmers who grow switchgrass.

Table 6 shows the total estimated costs for switchgrass. This includes production, storage and transportation.

Table 6

Alternative Assumptions

Estimating the cost of producing any crop will vary depending upon the assumptions made. Making assumptions is necessary, however, because we can’t model each individual farm, field, and situation. By varying some of the key assumptions we can determine areas that are the most critical in estimating the costs of production.

Figure 1 and 2

Figure 3 and 4

Figure 5 and 6

The Future

The future of switchgrass production depends upon its potential commercial uses. If switchgrass is used as a feedstock for ethanol, replacement for coal or other technologies, further research is needed to increase yields.

As shown in Figure 1, increasing yield will have the biggest impact on reducing the costs of switchgrass for any energy use.

The Conservation Reserve Program (CRP) may also play a role in the future of switchgrass. If green payments would be added to a switchgrass rotation on CRP land, there would be a larger economic incentive for producers. Switchgrass is a good alternative because it can be grown on marginal land and offers erosion control as well as other environmental benefits.

For switchgrass to become a commercially viable crop, there must be available markets. For cropland, there must be a sufficient economic incentive for producers to change their rotation systems. More efficient harvesting and transportation methods must be adapted to improve profitability. In addition, logistical issues must be addressed and, perhaps most important, the issues of handling and storage must be addressed.

Switchgrass can become a viable bioenergy crop. The engineering is being refined. But, before switchgrass can become viable commercially, key farmer issues must be addressed.

 

Michael D. Duffy, retired economist. Questions?