Sweet Sorghum Financial Guide
Considering financial factors is an important step in evaluating an alternative crop. For sweet sorghum, farmers should understand the potential risk and return involved in planting and growing the crop. Is the selling price high enough to cover my production costs and provide an economic return? Is the market for selling sweet sorghum stable, and will it be available for multiple years? These and other key financial issues should be thoroughly researched when deciding whether to adopt sweet sorghum as a crop for your farm.
Cost of Production and Returns
Major production costs involved in growing and supplying sweet sorghum for bioenergy purposes are seed, fertilizer, lime, herbicide, labor and machinery and equipment. To project sweet sorghum economics, the economics for grain sorghum provide a good guide. Compared with grain sorghum production, sweet sorghum production would likely require less nitrogen expense, and growing sweet sorghum wouldn’t require drying fuel and electricity costs.
On the other hand, sweet sorghum would need greater potassium and phosphorus fertilizer investments. Sweet sorghum seed and equipment costs also tend to be more significant than those for grain sorghum. Sweet sorghum input costs may also be similar to corn silage production costs. Generally, however, sweet sorghum will require lower input investments than corn silage.
Transportation costs influence sweet sorghum production profitability. To maximize profitability, nearby markets must exist, or producers must choose varieties that yield especially well to accommodate the greater transportation expenses incurred. To reduce processing capital investment needs and transportation costs, producers may consider in-field processing systems. Such in-field processing units may represent an opportunity for sweet sorghum if they require less investment than a central processing facility that has limited seasonal utilization. Several producers could collaborate, share the in-field equipment and assist one another during harvesting and processing.
Other options to improve sweet sorghum profitability may include using it as a rotational crop; adopting high-yielding varieties that efficiently use nutrients and resist pests; and marketing multiple sweet sorghum products, including sugar, grain, bagasse and vinasse.
With regard to possible returns, the projected return per ton of sweet sorghum produced may average $35, and yield potential may average 18 tons per acre. This revenue estimate assumes that a bioenergy market for sweet sorghum develops in Missouri.
Available at the link below, a cost-return budget for sweet sorghum will allow you to conduct a customized sweet sorghum analysis for your farm.
In the 2014 Farm Bill, the Noninsured Crop Disaster Assistance Program created coverage options for crops that hadn’t previously qualified for federal crop insurance. The new program includes sweet sorghum as a crop eligible for protection. The Noninsured Crop Disaster Assistance Program enables applicants to cover as much as 65 percent of projected production at 100 percent of the average market price. As 2014 Farm Bill programs are implemented, look for more information about sweet sorghum coverage opportunities.
Before growing sweet sorghum for bioenergy purposes, first secure a contract with an ethanol plant to guarantee that you’ll have a market for the harvested crop. End-markets for sweet sorghum as a bioenergy feedstock will likely evolve. As opportunities present themselves, remember to contract with a party that will fulfill its obligations for the contract’s entire duration. Below are some key issues to consider in a biomass contract between the buyer and seller.
· Terms and time of pickup or delivery
· Selling price and payment terms
· Quantities and required product specifications
· Contract length and termination clauses
· Harvest, transportation and storage functions
Helsel, Zane R. and Jose Alvarez. 2013. Economic Potential of Sweet Sorghum for Ethanol Production in South Florida. University of Florida IFAS Extension. Gainesville, FL 32611.
Office of Communications. 2014. USDA Provides Greater Protection for Fruit, Vegetable and Other Specialty Crop Growers . USDA Farm Service Agency. Washington, DC 20250-9410.
Oklahoma State University. 2007. ” Sweet” Biofuels Research Goes Down On The Farm. ScienceDaily. Stillwater, OK 74074.
Pfeiffer, Todd, Michael Montross and Michael Barrett. 2013. Sweet Sorghum for Biofuel. University of Kentucky Cooperative Extension Service. Lexington, KY 40546-0091.
Stevens, Gene. 2019. Sweet Sorghum for Biofuel Production. eXtension.
Veal, Matthew W., Mari S. Chinn, Matthew B. Whitfield. 2014. Sweet Sorghum Production to Support Energy and Industrial Products . North Carolina Cooperative Extension. Raleigh, NC 27695.
Vermerris, Wilfred, John Erickson, David Wright, Yoana Newman and Curtis Rainbolt. 2011. Production of Biofuel Crops in Florida: Sweet Sorghum. University of Florida IFAS Extension. Gainesville, FL 32611.
Farm Financial Assessment
Farm financial performance and records are important to consider when evaluating a new alternative crop. Past financial performance, current financial condition and the capacity to take on risk influence alternative crop adoption viability. If you need external financing to kick start your entry into alternative crop production, then your lender will likely want to see a good business plan and, if available, financial and production histories.
Financial recordkeeping systems are important for tracking financial performance and making decisions. You can keep records manually through a written system or electronically through a computerized system such as Quicken or Quickbooks. For you to make sound decisions, financial records need to be kept current and accurate.
Information from financial statements and income tax records can measure a farm’s financial position and performance. The balance sheet, statement of cash flows and income statement are three important financial statements. Balance sheets communicate the financial condition of a farming business on a specific day, such as the beginning or end of the year. They share detailed information about a farm’s assets, liabilities and equity. The statement of cash flows (cash in, cash out) shows cash receipts and cash expenditures during a certain time period. The income statement reports the revenue, expenses and profit during a given time period. Historical balance sheets, statements of cash flows and income statements demonstrate how the business has performed. Additionally, these statements can be used to project the business’ future performance. IRS Schedule F and 4797 tax forms are important to existing producers for accurately conducting accrual-adjusted financial analysis.
Key financial measures also help to evaluate a farm’s financial condition. Numerous financial measures can help with evaluating a farm. Usually, these measures tend to look at the profitability, financial efficiency, liquidity and solvency of the business. Examples include return on assets, the operating expense ratio and the debt-to-asset ratio. Lenders typically use a set of key measures when they evaluate loan applicants. Key financial measures can also help with benchmarking your farm relative to other operations. Benchmarking data can be obtained through developing good relationships with other local farmers who are willing to share some of their key financial measures. Alternatively, you may try contacting state recordkeeping business associations, universities or extension services.
Many tools and spreadsheets available online may assist producers in developing financial statements, keeping records and conducting financial analysis. Additionally, accountants, bankers and other business specialists are good resources who may assist with assessing farm financial performance.