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Can you afford to own hay equipment?

Robert Fears Published on 12 November 2014

Hay is an important part of beef cattle nutrition in most operations. Good-quality hay is high in energy and, depending upon plant composition and amount of fertilization, it can be high in protein. It is used to replace depleted nutrients in standing forages during winter months and periods of prolonged drought.

When cattle are fed in a drylot, hay is often used as a source of roughage. Hay is a common expense in beef cattle production, but hay costs should be controlled by taking advantage of feasible options.

One of the biggest input costs that reduce ranch profits is depreciation of hay harvest equipment. This equipment usually includes a mower, conditioner, rake, baler, at least two tractors, hay forks and trailers. It is hard to justify this much equipment unless you are in the custom hay-harvesting business.

How many bales does it take to pay for the equipment?

“Whether you can get a better deal baling your own hay than having a custom baler do the work depends on your equipment and operating costs,” says Whitney Wiegel, University of Missouri Extension ag business specialist.

“Machinery ownership costs are often prohibitive when equipment is not used to its full capacity or when the hay produced has little value.

To get a true picture of what you pay for your hay, it’s important to break your machinery costs into a cost of production for each bale. The more hay you bale, the less you’ll pay in fixed equipment costs per bale.”

Michael Geeslin, sales representative at Hoffpauir Outdoor Superstore in Goldthwaite, Texas, says, “The minimum list of equipment required for harvesting hay is a mower, rake, baler and a tractor.

For harvesting 4-foot-by-5-foot round bales, estimated new equipment costs are $25,000 for a rotary mower/conditioner, $5,500 for a 10-foot rake, $35,000 for the baler and $55,000 for an adequate-sized tractor. The total is an investment of $120,500.

“Average custom baling prices are from $25 to $35 for a 4-by-5 round bale in the central Texas area,” Geeslin says. “Dividing $120,000 by $25 equals 4,800 bales required to pay back the investment. If custom baling costs $35 per bale, 3,428 bales are required for paying the equipment costs.”

A common yield of non-irrigated coastal bermuda hay is 2.5 bales per acre, and one or two hay cuttings per year are possible when adequate rainfall occurs.

Often during drought years, there is no hay to bale and the equipment sits idle all year. Assume we have a 40-acre hayfield and we average one cutting per year. At 2.5 bales per acre, it will take 30 to 48 years to pay for the equipment:

3,428 ÷ (40 x 2.5) = 34
                or
4,800 ÷ (40 x 2.5) = 48

The above calculations are presented as examples of how to determine if you can afford to buy hay-harvesting equipment. To get an accurate answer, you have to use figures appropriate for your operation and geographical area.

Hay yields vary with plant species, cultural practices, fertilization, soil types, soil and air temperature, amount of moisture either from precipitation or irrigation, and a host of other factors. Equipment costs may vary from year to year, so it is important to use current equipment prices from your area.

What will be my variable costs?

“Equipment costs are relatively fixed and include depreciation, interest, insurance and taxes,” says Wiegel. “There are also variable or operating costs such as labor, fuel, maintenance and repairs. These costs are considered variable because their cumulative dollar value will vary with the quantity of hay baled.”

Researchers at the Texas A&M AgriLife Extension Service did an economic impact study of purchasing versus producing hay in South Texas, using both fixed and variable costs. The complete study is available (Farm Assistanc - Texas A & M). The Financial and Risk Management (FARM) Assistance strategic planning model was used to evaluate five different scenarios.

The 2,000-acre ranch in this model was assumed to consist of 1,900 acres of native pasture and 100 acres of previously established coastal bermuda. The base year for the 10-year analysis of the representative ranch is 2009, and projections are carried through 2018.

Scenario 1 assumes all hay is purchased and 100 acres of improved pasture is used for grazing only. A high stocking rate of one animal unit to 8 acres is used with the assumption that 50 additional cows can be grazed on the 100 acres of unharvested coastal.

This pasture is fertilized once a year with 250 pounds per acre of 27-4-9 at $50 per acre. A one-time application of a broadleaf herbicide at $8 per acre is also included.

In Scenario 2, the improved pasture is used to produce hay, which will be harvested by the rancher. It is assumed in Scenario 2, as well in the remaining scenarios, that the stocking is one animal unit to 10 acres (200 cows and eight bulls).

The hay-harvesting equipment is owned: tractor ($36,000), baler ($18,000), rake ($5,000), cutter ($10,000) and hay fork ($100). The 100 acres of coastal bermuda is harvested three times a year, and yield is 2½ 1,200-pound round bales per acre for each cutting or 750 bales per year. A one-time herbicide application at $8 per acre is also assumed.

Part-time labor was increased $1,800 ($10 per day x 3 days for cutting, raking and baling + 3 more days for moving hay from the field).

Fuel and lube for hay baling added $4,692 to expenses (65 gallons of fuel per day x 3 days of cutting, raking and baling x $2.30 per gallon + 10 gallons per day x 3 days for moving hay). Net wrap was used at $1.12 per bale or $1,140 per year. Maintenance and repairs were estimated at $1 per bale.

Scenario 3 involves hay production with custom-harvesting at $25 per bale or $18,750 per year. Fuel for moving hay bales off the field amounted to $207 per year, and the required extra labor cost was estimated at $900 per year.

Scenario 4 is comparable to Scenario 1 and entails buying hay but not fertilizing the 100 acres of coastal bermuda. A one-time application of a broadleaf herbicide at $8 was assumed.

Scenario 5 is similar to Scenario 3. Hay is harvested only one time and then cattle are grazed on the coastal bermuda field. Annual operating costs include $6,250 for custom hay-harvesting, $69 for fuel, $300 in labor for moving hay, $5,000 for fertilizer and herbicide at $800.

Financial impacts of purchasing VS producing hay

Financial impacts of purchasing versus producing hay derived from this study are shown in Table 1. Income and costs listed in Columns 3 and 4, respectively, are for the whole ranch operation including cattle production and hunting.

Figures in Column 5 of Table 1 show that net cash farm income (NCFI) is slightly higher for Scenario 2 of owning equipment versus Scenario 1, where all hay is purchased. After adjusting NCFI for depreciation in Column 6, net farm income per year is $42,720 in Scenario 1 and $38,640 in Scenario 2.

Forecasted cumulative cash flow over a 10-year period shows that buying hay appears to be the best alternative on average (Column 7). The difference is largely due to the additional cost of owning harvest equipment.

What are the options?

Unless the operation is large, it is hard to add profits by buying hay-harvesting equipment. There are options, however, in addition to custom baling and purchasing hay.

Co-ops or partnerships can be formed for the purpose of purchasing and managing hay equipment. With the ownership spread among several people, the equipment is used more often and investment can be recovered in a shorter period of time.

Most farm equipment manufacturers offer lease options, which don’t require capital expenditures. The cost is charged against the business as an expense rather than depreciation. Lease agreements don’t save you money, but they do help preserve capital. A large amount of hay has to be harvested annually for a lease agreement to be beneficial.  FG

Robert Fears is a freelance writer based in Texas.

References omitted due to space but are available upon request. Click here to email an editor.

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