Monday, June 9, 2008

Determining the Cost of Hay

I’ve had several conversations regarding the cost of hay recently. One person, trying to determine what to charge for essentially renting hay ground, reasoned that if the renter was going to sell small square bales for $5 or more per bale, then they ought to have at least $2 per bale as their share. Another person told me that if there is a lot of grass growing that gets made into a lot of hay then hay will again be cheap ($50-60/ton?) as in past years. The cost of producing hay can be determined from the value of nutrients removed plus the equipment costs. Whether hay is actually worth what it costs to produce it is yet another question.

According to the Ohio Agronomy Guide, each ton of grass hay removes 40 lbs of nitrogen, 13 lbs of phosphate (P2O5) and 50 lbs of potash (K2O). I called two local fertilizer dealers to get prices on per ton bulk quantities. Urea (46-0-0) was quoted at $690 and $788/ton, DAP (18-46-0) was quoted at $1050 and $1375/ton and potash (0-0-60) at $600 and $665/ton. Using these prices to replace the nitrogen, phosphate and potash removed in a ton of hay resulted in a cost of between $61.41 to $70.66 per ton. Since I was using DAP to replace the phosphate removed, this also provided about 5 lbs of nitrogen. The remaining 35 lbs was replaced using urea. Besides the fertilizer cost, there should be something figured in for spreading the fertilizer. Using the 2008 Ohio Farm Custom Rates, the average cost for spreading dry bulk fertilizer is about $4.50/acre.

It is true that hay can be produced without fertilizing. I see it happen all the time here in Athens County. So, should fertilizer cost be part of determining the cost of hay? Yes, because each ton of hay removes those nutrients whether they are replaced or not. It is a matter of pay now or pay later. The soil can get mined to the point where it is no longer practical to produce hay. To restore soil to good productivity then takes a massive investment to restore soil fertility. Every year I get phone calls where people say they will fertilize in the future, or they are waiting for fertilizer to get cheaper because it is too expensive. If your soil fertility levels are good, and you are pretty sure fertilizer prices are going to decrease, then go ahead and delay fertilizing. However, you should still include some fertilizer charge into your hay cost calculation based on that future fertilization.

The next part of calculating the cost of hay production is machinery/equipment expense. I used average cost figures from the 2008 Ohio Farm Custom Rates. These rates are based on survey responses of Ohio farmers. Your own equipment costs may vary, and if you know what they are, plug those in. For those who don’t know, this is a good place to start. Mowing is valued at $11.13/acre, tedding at $6.13/acre, raking at $6.59/acre and large round bale baling and hauling at $8.81 per bale. Since we talk about hay in terms of price/ton, these per acre costs will have to get converted into costs /ton. Here is where fertility will pay some dividends. As tonnage yields increase, the machinery costs of mowing, tedding and raking decrease on a per ton basis.

Let’s consider an example where hay production is at 2 tons per acre and large round bales weigh 1000 lbs. The machinery costs are $5.56/ton for mowing, $3.07/ton for tedding, $3.29/ton for raking and $17.62/ton for baling and hauling the bales. If we need to do one tedding and one raking before baling, our total machinery cost is $29.54/ton. Adding the machinery cost to the lower of our fertilizer quotes ($61.41) results in a total hay production cost of $90.95/ton. At the higher fertilizer quote ($70.66), the cost is $100.20/ton. This does not include the cost of spreading fertilizer.

Now, it may be possible to reduce these hay production costs somewhat. You might find a better deal on fertilizer. Maybe you have an even distribution of 30% or more legumes in your hay mix, so the legumes provide nitrogen. Possibly you can spread some livestock manure that accumulated on a heavy use-feeding pad. You might be able to take out a pass with the rake if the weather is right and just tedd the hay. Maybe your machinery costs are a little lower. The point is, even with some of these conditions, hay is still going to be an expensive commodity. If you are making your own hay, these production costs are there whether that hay is mowed and baled at 15% crude protein and 65% TDN or at 7% crude protein and 48% TDN.

Then again, maybe the best situation is to find a neighbor or some other person who likes to make hay and hasn’t pushed a pencil on the costs. You just might run into a good deal.