Forage cost of production has significant impact on hay prices

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During the next several months, hay and forage producers will be pricing their current year’s production for their customers. Because of low forage yields in 2012 and declining inventories, the subsequent ending hay supplies were the lowest since 1957. Therefore, producers need to be keenly aware of the real cost of production for alfalfa, legume/grass mixed hay and grassy hay when setting a price for 2013. Sellers simply having a price in mind for their current crop based on the last few years may put them at risk of pricing their crop at a loss. Michigan State University Extension is encouraging all hay producers to consider all their costs when pricing this year’s crop.

Several important factors as well as input costs need to be incorporated into the final selling price to insure a fair and equitable price for both the buyer and seller. The forage quality of this year’s crop, especially for dairy livestock, will have an impact on price. Land cost and rental rates, fuel costs and seed costs have all increased since last year. Supply and demand will also be a factor based on reports of substantial winterkill in Minnesota, Wisconsin and Ontario, limiting supplies in surrounding areas. With one to three cuttings still to be cut, it’s hard to know what the future holds for the rest of the summer and so yields are not completely known.

Michigan land values have been rising steadily during the past few years according to a survey done by Michigan State University. This has led to rising cash rent prices for farmland and is reflected in the 2012 Michigan Land Values and Leasing Rates survey results below.

Average cash rent for Michigan agricultural land use, 2012

Region

Type of land use

Field crop tiled

Field crop non-tiled

Rent

Rent

Michigan

139

99

Southern Lower Peninsula

145

111

Upper and Northern Lower Peninsula

65

35

District 1-4 (UP, NW, NE, W Central MI)

72

38

District 5 (Central MI)

121

95

District 6 (East Central MI)

179

128

District 7 (SW MI)

122

103

District 8 (S Central MI)

146

116

District 9 (SE MI)

138

103

While the cost of land rent is not the only rising input, it has a significant impact on the forage cost of production.

The cost for hiring or doing custom work can be determined using the cost of ownership and operation. The custom rates are based on tradition or usual rates set in the community, the bargaining positions of both parties (i.e., availability of machinery services and demand for machinery services in your local area) and cost of operating the machines on your farm.

Ownership cost can be determined by using depreciation, interest, taxes and insurance. Operating costs can be determined by using the following formula: total ownership cost ÷ estimated annual use (acre, hour, bushel, ton). This would include tractor fuel costs, machine gas or fuel costs, and labor (hours and wage rate). For more detailed information on custom work rates, go to MSU Extension’s Custom Machine and Work Rate Estimates.

Reports of forage yield are better than 2012, however with limited supplies in reserve. The pricing of this year’s crop has been reported to be lower than the highs of last winter and higher than the 2011 selling prices. The Michigan Hay Sellers List is an online listing of farms with hay for sale. The listing is free and is kept current by deleting all listings that are over four months old.



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