Minimum production cost and optimum plant size were determined for pellet plants using agricultural biomass residue from wheat, barley and oats. Three scenarios involving minimum, average and maximum yields of straw were considered for developing a techno-economic model. The life cycle cost of producing pellets in Western Canada was estimated. The economically optimum size of production plant for the three yield scenarios in tonne year(-1) were 70,000, 150,000 and 150,000, respectively. The corresponding costs of production per tonne are $170.89, $129.42 and $122.17, respectively. However, the cost of pellets does not change much for capacities over 70,000 tonne year(-1) for both the average and maximum yields. The optimum size is same for both average and maximum yield cases. Sensitivity analyses have showed that the total cost of pellet production is most sensitive to field cost followed by transportation cost. Currently, the cost of energy from agri-pellets is higher than that of energy from natural gas. (C) 2010 Elsevier Ltd. All rights reserved.