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How to determine cost of hay production

Jeri Donnell Published on 31 December 2010

Most hay producers want to produce hay as profitably as possible. Establishing economic goals is the first step towards profitability. Once goals are established, farmers benefit by developing a management mindset centered on a business approach.

This requires understanding the costs of time, effort and inputs needed to produce and market the product. The following is an example of how to calculate hay production costs.

Hay production costs can be reported on a dollar-per-ton basis; however, this measure can easily be converted to a dollar-per-bale basis once the size of the bale is known. In our example, we will assume a 1,200-pound round bale, common for many regions. A key expense is the cost of soil nutrient removal (replacement).

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Although the amount of nutrient removal varies with forage type and quality, Noble Foundation consultants estimate that 1 ton of bermudagrass hay will, on average, remove from the soil 46 pounds of nitrogen, 12 pounds of phosphorus and 50 pounds of potassium.

Best-management practices include replacing these nutrients in the form of fertilizer. Using mid-2010 regional fertilizer prices, the costs associated with soil nutrient removal (replacement) are reported in Table 1.

Farmers may either estimate soil nutrient removal costs (as explained above) or may use the actual cost of fertilizer applied.

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Farmers also incur harvest expenses for cutting, raking, baling and transporting hay from the field. Custom rates are reported for each of these activities and are a good source when estimating a budget; otherwise, include machinery and equipment costs.  

Table 2 reports the total cost of production for our example. Depending on management intensity, farmers may also have expenses associated with herbicide application, storage and additional labor that need to be included in total cost of production.

The cost of production is also your breakeven price, meaning that you must at least receive this price to pay all expenses. If you are selling hay to other producers, knowing the breakeven price is particularly important to determine the sales price.

Revenue exceeding this breakeven price is profit. Farmers who sell hay for less than the breakeven price are forgoing potential revenue and are losing the opportunity to participate in other agricultural activities/land conservation practices that may be more economically viable.

I encourage each farmer to determine the price needed to breakeven for your hay operation. It is not too late as you continue to sell hay throughout the year.  FG

References omitted due to space but are available upon request.

—Excerpts from The Samuel Roberts Noble Foundation Inc.

Jeri Donnell
Ag Economist
The Noble Foundation