Hay Machinery Economic

Farm Business Management Update, August - September 2007

By Eric Eberly (eeberly@vt.edu) Extension Agent, Farm Business Management

Two common questions coming into Extension Offices are, “How much should I charge to bale hay?” and “How much does it cost to have my hay harvested?”  Costs associated with hay making continue to increase as machinery, fuel, repairs, and other input prices rise.  Costs are based on buying new equipment and holding the equipment for 12 years.  Tractors are assumed to operate 400 hours per year in all illustrations.  Other variables used in calculating machinery costs are shown in Table 1.

Tables 2 and 3 show the costs per acre for large round and square bales, respectively.  Costs are included for cutting/conditioning, raking, baling, and transporting the hay to a storage site. 

Users of these estimates should review the assumptions and agree with them prior to calculating individual custom rates.  Charging custom rates at estimated costs should cover all costs but does not guarantee a profit.  Adding 5 to 15 percent to estimated costs may be appropriate for determining custom rates. 

Many Virginia livestock producers who own haying equipment used on relatively few acres experience extremely high machinery fixed costs on a per acre basis as shown in previous tables.  Obviously, total machinery costs (Operating Costs + Fixed Costs) for both large round and conventional square bale haymaking can easily exceed $90 per acre when the machinery is used on 100 acres or less annually.  This cost will exceed $100 per acre if the tractors are used less than 200 hours per year.  The total machinery costs for the same line of equipment are reduced to less $45 per acre when 500 acres or more hay is produced.

To compare these costs to custom rates, labor and profit should also be considered.  Table 4 combines the costs from the 300-acre columns in tables 2 and 3, and calculates an operation charge with labor rates of $0, $8, $12, $16 per hour.  With this equipment compliment, it takes approximately 1.1 hours per acre to complete all tasks.

Table 5 show calculations for a per bale charge with varying labor rates and hay yield per acre.  When reviewing these tables, please remember that these values are directly related to the assumptions.  Your costs based on your equipment compliment may be different.

Some hay producers may be wiser to have their hay crops custom harvested rather than owning a complete line of hay equipment.  The custom rates in Table 6 were collected in the Shenandoah Valley and reported in the Year 2006 Farm Custom‑Work Rate Guide, which is available at Extension Offices or on the web at http://www.ext.vt.edu/news/periodicals/fmu/2006‑06/guide.html

For a small or part‑time farmer, purchasing haying equipment may not always be the best long‑term financial decision.  The farmer should determine, prior to making the investment, whether with borrowed or personal funds, if his total costs are at least comparable to what it would cost to custom hire the haying.  In some localities, custom operators may not be available, but where they are, low volume hay producers should closely evaluate hay machinery purchases compared to custom harvesting. 

References

AAEA Task Force.  Commodity Costs and Returns Estimation Handbook.  1998.

Cross , T.L and G.M.  Perry.  “Depreciation Patterns of Agricultural Machinery,” AJAE, Vol.  77 No.1 (February 1995) pp.194-204.

Dunford , Jack.  “Hay Machinery Economics,” Farm Business Management Update, April 2001.

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