A Stochastic Approach for Predicting the Profitability of Bioenergy Grasses

Abstract

Switchgrass (Panicum virgatum L.) and miscanthus (Miscanthus × giganteus) have potential to meet a growing demand for renewable energy feedstock. Before producers will invest in planting these crops, they need credible estimations of the potential profits. The objective of this study was to examine profitability of growing these perennial bioenergy grasses, incorporating uncertain prices and yields in the model. The model compared the profitability of five crops {switchgrass, miscanthus, corn [Zea mays L.], soybean [Glycine max (L.) Merr.] and tall fescue pasture [Festuca arundinacea]} on three soil profiles common in northeastern Missouri: an upland, noneroded soil, an eroded soil, and floodplain soil. The effect of the USDA Biomass Crop Assistance Program (BCAP) and crop insurance on the decision to grow switchgrass and miscanthus was analyzed. Actual grain yields, Agricultural Land Management Alternatives with Numerical Assessment Criteria (ALMANAC) modeled grass yields, and Food and Agricultural Policy Research Institute (FAPRI) baseline prices were used to simulate profit. The results were compared using cumulative distribution functions (CDFs). Corn production was always chosen by decision makers of all risk attitudes to other crops. Miscanthus was always more profitable than switchgrass. Based on the CDFs, perennial bioenergy grasses were more likely to be planted in eroded soils currently in pasture production; however, there were scenarios in which they could be planted on eroded cropland currently planted to soybean. Lastly, crop insurance for corn and soybean could affect the decision to plant perennial bioenergy grasses for risk averse producers.