Issue Establishing commodity prices and authorizing sale of crops grown at the Twenty Mile South Farm (TMSF).

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1 Date: February 15, 2017 To: Public Works Commission From: Ben Nydegger, Biosolids Manager Subject: Minimum Commodity Price List, 2017 Issue Establishing commodity prices and authorizing sale of crops grown at the Twenty Mile South Farm (TMSF). Background The TMSF has developed a plan to sell commodities based on the letters of interest received. The plan will meet our objectives which include selling all crops produced at or near market value and meeting regulatory requirements associated with biosolids application. We are currently in the third and final year of an allocation agreement with our customers. Several local and regional sources were referenced to develop the minimum commodity prices in Exhibit 1, including market news reports published by the United States Department of Agriculture (USDA), the Hoyt Report published by Seth Hoyt, local crop insurance brokers, and conversations with other regional producers and buyers. The values in Exhibit 1 have been reduced by approximately 10% to 50% to allow for possible decreased market prices in the future, or to allow for climatic conditions that could adversely impact the value of commodities. These prices are comparable to minimum prices that the City has realized for past commodity sales. This resolution sets minimum commodity prices. The actual selling price for alfalfa hay and wheat straw will be based on the average market price at the time of sale as listed in the Idaho Weekly Hay Report (USDA) and the Hoyt Report. Wheat will be sold at market price at the time of sale or as specified in a forward contract. Prices for corn silage, haylage, and triticale for forage will be specified in buyer contracts based on expected 2017 values. For additional information on how the TMSF develops pricing for each commodity, please see Attachment A. 1

2 Legal staff has determined that according to Idaho Code , to proceed with crop sale agreements with interested parties, City Council must approve the minimum prices for each of the commodities. Options and Recommendation We recommend approval of the 2017 minimum commodity price list shown in Exhibit 1 and request your recommendation to City Council for adoption of a resolution approving the price list. This will provide authorization for the Public Works Director or his designee to enter into crop sales agreements. Suggested Motion We move that the recommendation be approved which will allow the sale of crops grown at TMSF in Crop Exhibit TMSF Minimum Commodity Prices Approximate Acres Alfalfa 1,382 Supreme Premium Good Fair Utility Low quality, damaged Minimum Price* $100/ton $70/ton $60/ton $50/ton $25/ton $25/ton Haylage 1,382 $20/ton Triticale (green chop) 143 $10/ton Oats or Barley (baled) Up to 50 $30/ton Corn Silage 1,130 $20/ton Winter Wheat 676 $3.00/bu Wheat Straw 676 $20/ton * Represents minimum expected prices including a contingency to allow for possible decreased future market values, or to allow for climatic conditions that could adversely impact the value of commodities. 2

3 ATTACHMENT A TMSF Crop Pricing Information February 2017 Background The TMSF makes every attempt to use published prices for all commodities sold. The TMSF is very sensitive to impacts on the local market and we strive to set the most equitable prices possible. We reference published market news reports in addition to University crop pricing guides to determine how to calculate commodity pricing. The farm attempts to remain consistent with our pricing methodology, but very high or very low commodity prices have forced us to deviate occasionally. The guidelines for establishing commodity prices are outlined in an annual Excel spreadsheet that is updated prior to each crop season. The TMSF produced record gross revenues for the three consecutive year period from 2011 to 2013, peaking at $3.48 million for the 2013 crop season. Gross revenue in 2014 was very comparable, totaling $3.45 million. In 2015, even with commodity prices down across the board, we were still able to gross $3.39 million. In 2016, commodity prices took a downward turn and the TMSF was only able to gross $2.83 million. However, this was not due to a lack of effort on the behalf of farm personnel. We worked hard to get a partial fifth cutting of alfalfa even though the weather conditions were not favorable. Commodity prices have not rebounded as we enter the 2017 crop season. Prices continue to be depressed for alfalfa, haylage, winter wheat and triticale so we anticipate gross revenues similar to 2016 in We are hopeful that commodity prices will rebound and we can continue to return a net profit for the entire solids handling portion of the wastewater treatment process for the City of Boise. Often solids handling is one of the most expensive facets of wastewater treatment for municipalities. TMSF staff are currently pulling together pricing from other producers in the region and comparing with our historical pricing methodologies. The Public Works Commodities Sales Committee will meet in March where we will review our pricing methodology for 2017 and firm up prices. (in bold): Silage Corn Silage corn is planted in mid April and then harvested in early fall, before frost. The entire corn plant including the leaves, stalk, and ears are chopped into small chunks and shot directly into hauling trucks. The chopping and hauling is done by the buyer, who hires an outside contractor. It is then immediately weighed at the TMSF scale and hauled to the buyer s site where it is stored in large pits or piles. Silage Corn is priced by the wet ton at 70% moisture. The City establishes a sliding scale each year for silage based on the percent moisture from 55% to 75%. Dryer silage costs more because it is lighter. 3

4 The Hoyt Report published by Seth Hoyt is a report on commodities in the Western U.S. The Hoyt Report periodically includes silage prices that have been contracted between the grower and buyer. There have been no reported silage sales so far in Word of mouth contracts in the region are around $32/ton at 70% moisture. The old rule of thumb for valuing silage corn in the field has been approximately 7 to 9 times the price of shell corn per bushel assuming a moisture content of 65%. o Using this methodology, the current market price of shell corn equates to a silage price of $30.91/ton at 70% moisture. o Using the forecasted future (December 17) market price of shell corn equates to a silage price of $31.30/ton at 70% moisture. Northwest Farm Credit they have been providing good information on how much they are insuring corn crops. We will have pricing by the end of February from them. We are still gathering information on silage corn pricing, but it appears that around $31/ton at 70% moisture is where we will be. This would be a drop of $3/ton (~9%) from Silage corn has accounted for a large portion of TMSF revenue in the past: o $1.3 million in 2016 revenue ($34/ton) o $1.2 million in 2015 ($34/ton) o $1.2 million in 2014 ($38/ton) o $1.2 million in 2013 ($40/ton) o $1.1 million in 2012 ($37/ton) Baled Alfalfa Hay In 2016, we began pricing alfalfa hay has been priced according to the average price from two referenced, citable sources. The first source is the Idaho Weekly Hay Report published by U.S. Department of Agriculture. This report is published every Friday during the crop season and is publicly available to anyone who is interested. The second source is the Hoyt Report published by Seth Hoyt and is subscription based. o Both are citable, referenced values. o Hoyt Report requires a subscription of $119/year. USDA Report is free. o Farm pulled together records from that indicated the Hoyt report is generally priced slightly higher over the 3 year period. o Both reports have contacts in Idaho that provide the pricing information. The TMSF samples the baled hay and sends the samples to three separate laboratories where it is analyzed for relative feed value (RFV) and Crude Protein, among other parameters. Based on these values, the hay is qualified as supreme, premium, good, fair, or utility and it is sold as such. Hay prices are set at the time the hay is baled in the fields. 4

5 All of the baled hay harvest from the swathing, raking, and baling is performed by farm personnel with City equipment. We try to get five cuttings of hay per year, depending on the weather. Baled alfalfa hay has also accounted for a large portion of TMSF revenue: o $890k in 2016 revenue o $1.6 million in 2015 o $1.2 million in 2014 o $1.3 million in 2013 o $875k in 2012 Alfalfa Haylage Haylage is green chopped alfalfa that is swathed, windrowed, and then chopped into small pieces and shot directly into hauling trucks where it is immediately weighed and hauled off to the buyer s site. The final chopping and hauling of the haylage is done by the buyer who hires an outside contractor. This process is similar to silage corn. o This is different than baled hay because the hay is not allowed to dry in the field prior to baling. Haylage is a very wet product. The target moisture of haylage is 64%. Baled hay contains approximately 10% moisture because it sits in the field for several days to dry down prior to baling. Haylage prices have traditionally been set based on an expected breakdown of 80% dairy (premium or supreme) and 20% feeder (good to fair) hay. For 2017, we propose setting haylage prices based on $90/ton to $100/ton baled alfalfa. o Current prices from Hoyt: $120/ton for dairy hay and $90/ton for feeder hay. o Current prices from USDA: No dairy hay reported and $90/ton for feeder hay. Using $90/ton baled alfalfa pricing and calculating the haylage prices (based on dry matter) resulted in haylage prices of ~$37/ton at 64% moisture. We then take out the harvesting cost for swathing, raking, and chopping (estimated at $10.00/ton) and the final price of the haylage in the field is $27.00/ton. Using $100/ton baled alfalfa pricing and calculating the haylage prices (based on dry matter) resulted in haylage prices of ~$41/ton at 64% moisture. We then take out the harvesting cost for swathing, raking, and chopping (estimated at $10.00/ton) and the final price of the haylage in the field is $31.00/ton. The swathing, and raking fees are charged to the buyer on a per acre basis if it is done by the City. The farm establishes a sliding pricing table for haylage, based on the percent moisture at time of harvest. Dryer haylage costs more. Alfalfa is green chopped for haylage during periods of rain, or frost that can reduce the quality of baled hay. This is usually a factor in the first and/or fifth alfalfa cuttings of the growing season. Rather than waiting extraordinarily long periods of time for the hay to 5

6 dry, we can have it chopped into haylage and go directly into the next cutting, thereby increasing future yields or getting a little more revenue at the very end of the season. Alfalfa haylage accounted for: o $265k in 2016 revenue ($34/ton based on $110 baled hay) o $401k in 2015 ($49/ton based on $150 baled hay) o $566k in 2014 ($49/ton based on $150 baled hay) o $493k in 2013 ($46/ton based on $145 baled hay) o $274k in ($46/ton based on $145 baled hay) Triticale Triticale is a rye grass/wheat hybrid that is a good quality commodity for feeding cattle. It is used at the farm when we double crop fields with corn. The triticale is planted in the fall and harvested in early June. The field is then usually spread with biosolids and planted with corn immediately after the triticale is harvested. The triticale is harvested in a similar fashion to the alfalfa haylage. The final triticale chopping and hauling is done by the buyer, who hires an outside contractor. The swathing, and raking fees are charged to the buyer on a per acre basis if it is done by the City. The old method of determining triticale prices was 13 times the price of a bushel of oats. Oats and triticale forage qualities are similar and would be close in value. o Using this old method, triticale would cost approximately $26.28/ton at 70% moisture. o This is not realistic to charge similar to haylage, so we will need to adjust our triticale pricing for Another method of pricing triticale is charging about 75% of baled feeder hay price. Current feeder hay prices are about $87, so $87 * 0.75 = $65.25 o This would equate to about $16.71 triticale o We will continue to evaluate but are looking to charge around $17/ton to $20/ton for triticale at 70% moisture. The farm uses a sliding scale for triticale prices based on the percent moisture at harvest. Dryer triticale costs more. Triticale accounted for approximately: o $66k in 2016 revenue ($17.96/ton) o $47k in 2015 ($31/ton) o $38k in 2014 ($31/ton) o $32k in 2013 ($31/ton) o $35k in 2012 ($31/ton) Winter Wheat Grain The winter wheat is the one commodity that we have that can be forward contracted in various increments with the local granary that gets our wheat, Big D. The farm manager watches the wheat grain prices, which are sent out via e mail daily from Big D and 6

7 consults with the Biosolids Manager on when to contract the wheat. Of course, we make every attempt to get the best price possible for our wheat while minimizing risk of a fluctuating market. Big D s wheat prices are roughly cents less than the granary prices in Portland. We have not contracted any wheat grain so far for Current prices are just roughly half of what they were in 2015, but they are beginning to rebound. We are hoping wheat prices will rebound as we get closer to July/August harvest time. The current wheat price from Big D is $3.80/bushel and the future price (August 2017) is an even $4.00/bushel. Winter wheat accounted for approximately: o $454k in 2016 revenue o $448k in 2015 o $560k in 2014 o $325k in 2013 o $780k in 2012 Baled Wheat Straw The straw is the stem portion of the winter wheat. The wheat grain heads are combined and then the straw is cut and baled identically to the alfalfa hay. The City utilizes a contractor to combine our wheat each year and haul it to the buyer. The straw harvesting is done by City personnel with City equipment. Straw prices are published every week in the Idaho Weekly Hay Report published by the US Department of Agriculture. The straw prices are set when it is baled in the field. Similar to the Baled Alfalfa Hay, we will average the weekly USDA Report and Hoyt Report straw prices in Straw accounted for approximately: o $147,000 in 2016 revenue o $108,000 in 2015 o $58,000 in 2014 o $48,000 in 2013 o $60,000 in