growing miscanthus Giganteus to pay for a farm?????

[trbizwiz]

OK, so i have seen flyers and heard from farmers in my area that MFA is partnering with a biofuel company to raise miscanthus giganteus for biofuel in pellet form. This is a grass that grows up to 12 feet tall adn then when it goes dormant the lignified stems are cut and turned into biofuel pellets for power generation. Supposedly since the grass is dormant whe cut, there is little impact to the soil. It is even touted as improving the soil because of the litter tha is replaced on the soil when harvesting. i am not sure i buy that line but what ever.
The rumors on the math are that they want 40 acre blocks and up to 80 acres per family. the harvest will yield around $400 per acre, or roughtly $16000 per lease per year.
i am on a 5 year plan for being debt free before I plan on buying around 100 acres and going full time on farming hopefully in th enext 10 or so years.
It seems that if I jumped on board this deal nad financed 80 acres and used this lease deal to make the payments over the next 5 years while I use my resources to get debt free other than this land project. I could then concentrate my efforts to paying off this land. It would take around 9 years at the current terms to reduce the principle by half, if I paid no additional to the mortgage. The payment on the land for a 15 year term would be the entirety of the lease amount, adn I would still have taxes to pay on th elease income.
What down sides do you guys see to doing this?
I am not fully convinced, this is a smart idea or even a good deal.

[Rickstir]

1) all hype and no concrete industry.
2) bad weather could affect yield
3) sounds a lot like raising Emus.

[DaleK]

If the math was that good (and more importantly that reliable) why would anybody be renting the land to use instead of buying it with their own financing and making even more money?

Miscanthus has a lot of potential but I definitely wouldn't depend on taking that kind of money to the bank 5 years out.

[sunflower-n-ks]

First, research the grass pellet industry. I became aware of that and did a brief search. It seems that the grass pellets put out as much heat as wood pellets but are a lot less expensive to produce. It takes less energy to reduce the grass to the point it can be pelleted than wood and is a lot easier and faster to grow with more profit to the farmer. There are, I think, they said, three main varieties of grass that are used and one problem is getting farmers on board to produce it.

Also, although cheaper to produce, and it puts out the same heat/energy as wood or some of the other pellets, it burns causing build up of ash and possible wear on the stove. The stove chosen to burn it is key and work is being done to make stoves to handle it.

Still seems to be a ground floor industry with more learning curve to go, but so worth learning and working toward it if you can. But, you can grow the grass without going through someone that will soak up profits. Learn the industry and who to sell to. I would love to know what you find out. Grass can also be turned into ethanol instead of using corn.

[KIT.S]

If you're counting on the income for 5 years, you need a contract with a guarantee that they'll BUY for 5 years at that price or better. If they change their minds, or if the market isn't there, can you sustain the property planting something else? It would be a shame to get 3 years down the road and lose the property.
Kit

[trbizwiz]

Yes thes are concerns I have had. i am very skeptical right now about the deal. i guess one concern is if I opt out and wait 5 years to buy land, even if this is a bad deal, it may have driven land prices up to the point where the average guy cant buy land anyway. ASo on the one hand you can lock down some fairly reasonable alnd prices right now, and on the other you could get a protion paid for with the labor of others. But there is substaincial risk in buying $80K to $160K of land then potentially not being able to pay for it. As soon as my mortgage is paid off I could easily afford it. But That is 5 years away.
If you believe what you hear these leases range from 3 to 5 year contracts. So you would have a contract. But a contract can be defaulted so I am not sure what that is worth.

[Silvercreek Farmer]

Originally Posted by DaleK

If the math was that good (and more importantly that reliable) why would anybody be renting the land to use instead of buying it with their own financing and making even more money?

Miscanthus has a lot of potential but I definitely wouldn't depend on taking that kind of money to the bank 5 years out.

A lot of companies don't want to be in the real estate business, it ties up too much capital. They prefer to lease/rent their real estate and invest their capital in growing their core business. I think I heard somewhere that Target just divested a bunch of RE, just to lease it back.

In regards to the OP, start up ventures carry the highest risk of failure and highest potential reward. You just have to understand the risk and decide if it is right for you. Personally I would like to see an arrangement that is already up and running and see how satisfied the land owners are. Meat producers have been running contracts for years, some folks are happy, some are not, a lot depends on the organiziation and who is taking the risk in the relationship.

[Old Vet]

The only way I would go into this is to have a signed contract with the buyer for at least 10 years.

[rambler]

Run away.....

There is potentail in this plan, but no one has made it work yet. It's _possible_, not _probable_ that this will ever work, and not at all likely it will be working in 5 years.....

Contracts get very, very messy when a company goes bankrupt; the courts view those contracts as assets, so if you have a 5 year (or, gasp, a 10 year!) contract then your land could be considered an asset of the bankrupt company for a few years. Not something I'd want.

If you have 2000 acres and you want to risk 40 of it on this then that would be a cool gamble. About 80% of these sorts of deals go bad. Anout 15% struggle on to at least not go bad. And 5% might hit it big, and then you'd be glad you happened to invest in that one deal. But - you'd have 8 failures for every one or 2 good windfalls you would ever invest in. The odds are very much against their numbers ever working out. They are best case opinions, not real solid numbers!

Be a fun gamble if it were a small part of your operation.

Would be disaster if most of your land got tied up in such a thing most of the time.

--->Paul

[rambler]

This deal?

http://articles.ky3.com/2011-02-16/s...souri_28549393


Last year and this year, corn can get you a better gross return.

But remember, grasses take a lot of N to grow. If you haul away the lignen, you need to replentish the P & K.

Does this grass need to be replanted every year, or is it a peranual? It takes a lot of time & effort to establish some grasses - might be the 2nd year before you get a harvestable crop. take that into account. Controling weeds on ew seeding is also a tough job. Perhaps once established, the tall grass shades out weeds, but not that first year!

What forms of the material will they accept? Round bales, more likely _only_ large square bales. Those balers cost over $100,000, so you will pay someone to harvest it.

What moisture content will they accept, how bad are the penalties for having wet grass, or grass that had the leaves shatter off because it was too dry, etc?

They are giving you a gross set of numbers there, you need to figure out what the net will be. And it will be a lot less than the gross.

They mention it might fuel coal plants, it might even fuel ethanol plants. Sounds like they don't really have a market sewn up, that's a little scary..... Burning grasses, as someone mentioned, tends to produce more ash. That's gonna be a problem to overcome, in this EPA world any sort of extra emission leads to costly problems....

They mention it grows on less than ideal land. This means it already doesn't compete with corn & soybeans. It needs to use 'cheap' land.

Problem with cheap land is it's probably wet, and ask folks how farming wet land is working out this year - it is aweful. You can't harvest hay in standing water. I just tried - made one round around the wet spot I got that I make hay in. Wow, wet bales - got them spread all over the barn.... Anyhow, if the land can't raise corn & soybeans, there will be times it won't be harvestable for grass hay. What happens if you can't meet your contract to deliver so and so many good dry bales of this grass? What happens when it's a great year for this stuff to grow, and everyone has 30% more than normal, will they have a glut and pay 50% less?

Who stores the hay - it gets harvested once or twice a year; the factory will want to run 12 months a year, so who stores the bales, when do you get to deliver them, when do you get paid, who is responsible for damage to the bales, etc?

Are there any other uses for this type of grass, can it be fed as hay? Does it behave itself, or does it turn into a weed that is hard for you to control on your or neighbor's property?

No risk, no gain, but like I said, I sure wouldn't risk 50% of my farm on this one company nd a contract with them. imho

--->Paul

[DaleK]

Paul Miscanthus is the one that you can't just seed down like hay... you have to transplant it as seedlings with a transplanter. Lots and lots and lots of labour

[Windy in Kansas]

Will broadleaf weeds need to be controlled in it or are they allowed? If controlled figure on some application and herbicide cost.

I would worry most about what the replacement nitrogen cost would be as others have pointed out. The cost of N is high and keeps climbing higher each year it seems. You couldn't knife in anhydrous or you would destroy the grass, that leaves liquid or granular or some form or organic.

Granted you might get by with cutting and removing grass for a few years but you would deplete the N as you do so.

[rambler]

Originally Posted by DaleK

Paul Miscanthus is the one that you can't just seed down like hay... you have to transplant it as seedlings with a transplanter. Lots and lots and lots of labour

Ah, that way. There is the initial expense then. Is that called 'sprigging' or so? Stuff like that isn't done here in my area, but yea - lot of cost in getting it established. Esp if you are doing it on 'marginal' land either too wet or too dry.

I have that 5-6 acre wet spot, comes up in grass, taller than the grll of my tractor, makes a lot of volume of hay, (ditch hay, whatever likes wet feet around here), and never fertilize it. So I understand the point of them saying you don't need to fertilize this stuff too much - wet areas like that tend to have a lot of fertility in them with very high organic levels to carry the soil on.

But that would change over time, if you harvested every crop you could over time.

By the way, I sound pretty negative on this venture - but only because the original poster has read all the good literature on it; I'm just offering the other side of it. If one is in a position to risk some on a venture like this, eventually after many strike out, you can hit it big with just one. So not a bad thing to try if you can afford to do so.

Just, sounds like the person is about to be in the free and clear, I would hate for him to get socked into a terrible investment and blow it all away. There are many things that can go wrong with a deal like this when it's unproven.

I got into a deal near here that was going to make partical board & pretty fake wood from soybeans and newsprint trimmimgs. Worked well in the lab, worked well in the real world, made a wonderful product. But alas, plywood & house trimmimngs went through a slow period 15 years ago, they ran into some govt issues with govt loans that were approved and didn't happen, and they ran into marketing problems. The local cabinet shop loved the stuff, they would order 5 sheets a month. Can't run a 25,000,000 plant selling 5 sheets of wood to a few cabinet makers. Home Depot loved their product, wanted 100 semi loads a week as a trial. Can't produce that much from one press, and can't get backing to add more presses on a 'trial' offer.

So it went under. Was a great idea, great product, ran fairly well for a start up company. Just too big or too small to actually work, the 25 mill plant ended up with 40 million by the time it went under, just could never make it's good product fit the existing markets.

Cost me $12,000 investment, but money well spent to try, I still think they had a good idea, just couldn't make it fit the marketplace as things changed beyond their control. I sure wouldn't have never invested $100,000 in a farm to grow soybeans for them tho (their original plan was to contract soybeans from us farmer-owners to use at the press) - in the end they abandoned soybeans and used leather trimmings as a better product for what thy were doing, and the newsprint turned into sunflower hulls and wheat straw to make pretty wood and lightweight particle board. They never did use the original products they thought they would or originally contracted from us.

Don't get into these plans over your head. They are much more like slot machines than sound business preposals. But they do hit once in a while, yea I'd have like to been invested in Microsoft in 1985 too, but then there were 40 equally new software companies back then to invest in, which one would make it and which ones would fail?

Put in your quarter & pull the handle.

--->Paul

[bruce2288]

Who does the cutting,baleing and delivery? Alfalfa will come close to that and is a known commodity, with markets, established farming practices and no nitrogen fertilizer needed.

[Sawmill Jim]

I bet someone that is promoting this is selling the seedlings or some sort of something .Reminds me of the old worm farming scam .

[pheasantplucker]

They've been touting this in Ohio for a while. I'd be skeptical.

[ronbre]

i grow ornamental grasses and use them for mulches in my gardens but hey, maybe I'll try binding some and using them in the woodstove?

[MrsFarmerWilly]

Seems a small time entry into the market might be developing a system to press the fuel pellets. If they burn that well it could sell in the renewable market.