As our summer growing season progresses, we are receiving many calls regarding hay and forage harvest and management. On the heels of drought, many are surprised by the excellent growth year for grasses. Consequently, landowners are being approached by hay contractors interested in harvesting hay in various grasslands or pastures. Hay values are driven by supply and demand. In 2012 values remained high due to drought and limited supply. In 2013, values continue to remain fairly high primarily due to limited hay acres. Due to a strong production year, additional acres such as emergency CRP likely will not be available as they were in 2012, making grass hay less available. Determining a “fair” pricing system for haying CRP grass, prairie grass, or old field forage has been a hot topic as these hay markets continue to retain high market values.
Traditionally, hay crop harvest agreements have primarily been on a per acre rental basis or a crop sharing basis. Recently, landowners with a hay crop that have no interest in physical retention of the hay crop have inquired about cash based contract agreements. Below are the basics of each type of hay contract agreement.
Cash Rent (per acre). In this system, the hay contractor pays the landowner a set fee for each acre of hay land. The benefit of this type of agreement is it can be based on relatively average hay production for the field and a fair price can be set. The downside to this type of agreement is that to be fair, good records of annual production should be kept. Fluctuations in hay value, quality, and quantity due to weather or markets can result in either the landowner or the hay contractor believing the agreement is not fair.
For example, in low-yield years the hay contractor will receive less profit for relatively the same input costs while the landowner’s profit remains unchanged – resulting in the hay contractor wanting reduced rental prices. In high-yield years, the hay contractor will receive greater profits for relatively the same input cost while the landowner’s profit remains unchanged, resulting in the landowner wanting increased rental prices. Unfortunately, yield cannot generally be pre-determined and thus risk to both parties is inherent in the agreement.
Share Cropping (traditional). There are two variations of this system. Traditionally with share cropping, both the landowner and the hay contractor are interested in retaining ownership of the physical hay crop. Generally, these agreements consist of an agreed upon ratio of retention for each party. Typically, the hay contractor receives two-thirds of the hay crop and the landowner receives one-third. Both parties have the option to either sell, store, or feed their portion of the crop.