A Comparative Profitability Assessment of Perennial Bioenergy Crops Grown in Missouri

Final Report for GNC12-155

Project Type: Graduate Student
Funds awarded in 2012: $9,999.00
Projected End Date: 12/31/2013
Grant Recipient: University of Missouri
Region: North Central
State: Missouri
Graduate Student:
Faculty Advisor:
Dr. Ray Massey
University of Missouri
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Project Information

Summary:

This project further developed our economic understanding of perennial grass cropping systems including miscanthus, switchgrass, and a polyculture of switchgrass and native legumes when they are grown for purposes of energy. It evaluated the relative profitability factoring in price and yield uncertainty of those perennial crops relative to the annual grain crops corn and soybeans for three soil landscapes (an eroded soil, an upland soil, and a floodplain soil) in northeast Missouri. The results showed that perennial grasses with government subsidies are more profitable than uninsured corn and soybeans on all three soil landscapes between 5 and 25 percent of the time. Their profits are also less variable than corn or soybeans. However, when subsidized crop insurance is considered, corn and soybeans are always more profitable. These results could lead to important impacts. First, the reduced profitability of perennial grasses, compared to annual grain crops, is an impediment to bioenergy crop production. Second, it demonstrates a scenario where subsidized crop insurance for corn and soybeans influences planting decisions by decreasing risks associated with these variable yield crops.

Introduction:

Alternative and domestic energy sources are developing in the United States, and bioenergy is poised to become one of those sources for Missouri. A reliable feedstock is a necessary condition for bioenergy
becoming a viable source. Perennial grasses such as miscanthus, switchgrass, and polyculture of switchgrass and native legumes are among the most promising feedstock being used and considered
based on their yield potential and ecosystem benefits. However, the future of bioenergy from perennial grasses is uncertain. Recognizing the need, potential benefit, and wanting to reduce that uncertainty,
Congress appropriated funds for the Biomass Crop Assistance Program (BCAPs), which the USDA would administer to jumpstart bioenergy from perennial grasses. This program subsidizes the establishment and land costs associated with growing these crops. Missouri received three out of a total of eleven of these BCAPs. Despite the need, potential, and subsidy for these perennial grass crops, impediments to the development of bioenergy from perennial grasses still exist. An important issue is how profitable these grasses are in comparison to other crops a producer can grow and an understanding of what influences that profitability.

Project Objectives:

The objectives of this project as stated in the original proposal are:
•A science-based, thesis explaining the study, its importance, methods, data, and results.
•The spreadsheet model will be developed into a farmer accessible tool loaded on the internet to assist
farmers making bioenergy crop decisions.
•A guide sheet on the profitability of these different energy crops for the two biomass aggregator
cooperatives currently operating to distribute to their members, interested farmers, and all other
stakeholders.
•Presentations at four MU field days/workshops occurring at various locations around the state of Missouri.

A minimum of 10 educators (University of Missouri Extension, Missouri Department of Conservation, high school agricultural education instructors, etc.), 30 farmers will attend each field day. Each MU field days/workshops will consist of a presentation and discussion in conjunction with field activities at the project site.

Cooperators

Click linked name(s) to expand
  • Dr. Newell Kitchen
  • Dr. Ray Massey

Research

Research results and discussion:

This project used economic analysis of risk of growing crops to fulfill the objectives and provide insightful information to farmers considering planting perennial grasses. The analysis begins with data from four sources. First, ongoing agronomic studies at Soil Productivity and Resource Conservation (SPARC) plots provided the basic insights including an approximation of yields for different soil landscapes and management practices. Second, price information came from Food and Agriculture Policy Research Institute (FAPRI) and their baseline projections. Third, yields for corn and soybeans came from field data collected by producers or precision ag-service providers. Lastly, ALMANAC was used to model yields for perennial grasses using weather data from a 30-year period.

An expected utility model was constructed using that data. In the model, a producer is expected to maximize utility based solely on profit distributions. Budgets representative of experience growing these crops on SPARC were made. Stochastic variables included yields of the three perennial grass cropping systems, corn, and soybeans and prices of corn and soybeans. One thousand simulations were run using different yields and prices. Each simulation yielded a profit distribution for each crop. Those profits were analyzed using graphed cumulative distribution functions (CDFs).

Participation Summary

Educational & Outreach Activities

Participation Summary:

Education/outreach description:

a. Thesis entitled “An Assessment of the Impact of Landscape Soil, Government Programs and Crop Insurance on the Profitability of Perennial Grass Cropping Systems Grown for Bioenergy” was completed
and defended in May 2013
b. An interactive spreadsheet profit calculator was developed. An HTML version of this calculator will be uploaded to a Mizzou Extension site as a part of a future update and available for farmers to use.
c. In conjunction with the interactive HTML calculator, a guidesheet was developed and will be uploaded to answer questions about advantages and disadvantages of each cropping system.
d. Presentations
i. “Greenhouse Gases and Perennial Grasses”, Adapting to Climate Change, University of Missouri, Jun 6th to 8th, 2012. (~100 attendees)
ii.“Greenhouse Gases and Perennial Grasses”, 4th Annual Agroforestry Symposium, University of Missouri, Jan 9th, 2013. (~70 attendees)
iii.“Biomass Markets: Making Economic Cents”, University of Missouri Extension Webinar, Mar 12th, 2013. (~20 attendees)
iv. “Biomass Contracts”, University of Missouri Extension Webinar, May 28th, 2013. (~20 attendees)
v. “An Assessment of the Impact of Landscape Soil, Government Programs and Crop Insurance on the Profitability of Perennial Grass Cropping Systems Grown for Bioenergy”, Department of Agricultural and
Applied Economics, University of Missouri, May 2nd, 2013. (~20 attendees)
vi. “Growing Bioenergy Crops on Missouri’s Marginal Soils: A Match Made in Heaven”, 2012 Crop Injury Diagnostic Clinic, Bradford Research Center, Jul 25th, 2012 (~120)
vii. “Miscanthus and the MFA Oil Biomass BCAP project” and “Soil Resource Assessment To Guide Production Practices” and “Soil Productivity Assessment for Bioenergy and Conservation (SPARC)”,
Training for University Extension and NRCS Staff sponsored by SARE – Translating Missouri USDA-ARS Research and Technology into Practice, Columbia and Centralia, MO, Oct 11th to 12th, 2012. (~40 attendees)
viii. “Agronomic and Soil Management Lessons Learned Planting 13,000 Acres of Miscanthus in the U.S. Midwest”, American Society of Agronomy Meetings, Cincinnati, OH, Oct 22nd, 2012. (~60 attendees)
ix. “Biofuels”, Science, Technology, and Society”, University of Missouri, April 25th, 2013. (~20 attendees)

Project Outcomes

Project outcomes:

Based on stochastic variables already mentioned, the CDFs show the following results:
• Corn and soybeans with crop insurance are the most profitable crops at the median regardless of landscape soil or BCAP.
• Miscanthus is the most profitable bioenergy crop although the bioenergy crops at the median have negative profits without BCAP.
• 5 to 25 percent of the time bioenergy crops with BCAP can be more profitable than corn and soybeans without crop insurance, suggesting that farmers who want to maximize their minimum may choose
perennial grass bioenergy crops. However, subsidized crop insurance negates that advantage.
• The less productive the landscape soil the more likely bioenergy crops compete with corn and soybeans.

Economic Analysis

This project is an economic study; thus, the information in other sections is very relevant to the answer here. It uses a maximizing expected utility model and profit simulations with uncertainty in yields and prices to construct cumulative distribution functions (CDFs). Those CDFs are interpreted using stochastic analysis to compare profitability of different cropping systems on three different soil landscapes.

Farmer Adoption

This study identified the following key impediments to farmer adoption of biomass crops: relative profitability of biomass and crop insurance impacts on choice of crop to produce. That impediment among others is limiting adoption. In order for perennial grasses to become a notable energy source, these impediments will need to addressed and overcome. Currently, the three BCAPs in Missouri have resulted in farmer adoption including over 10,000 newly planted acres of perennial grasses grown for bioenergy.

Recommendations:

Areas needing additional study

Additional research is needed surrounding two issues. First, the analysis needs to assess the relative profitability of these perennial bioenergy grasses relative to pasture or hay lands. That analysis is important as land less suitable for crops is often used for fodder production. Second, policy suggestions which keep a strong safety-net for producers and also stimulate the production of alternative crops like these perennial grasses need to be written, published, and reviewed.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.