For landowners who wish to maximize their potential profits while ensuring fairness in their relationship with the hay contractor, this type of agreement is valuable. Below is a simple equation that can create and maintain equality in a hay harvest relationship. With a small amount of homework, the landowner and the hay contractor can develop contract parameters that are fair and equitable based on actual product produced.
Background information necessary for a successful Cash Agreement:
- Type.Generally hay crops are categorized as alfalfa, alfalfa/grass mixed, grass, straw, etc.
- Quality. Generally, grass hay quality is affected by three primary factors: Species, timing of harvest and handling. If grass hay is harvested prior to seed set forage quality can generally be assumed to be very good. Cool season grasses such as smooth brome should generally be harvested in late spring/early summer while warm season species should be harvested in mid-summer (depending on the year). If harvest timing is off, you may have excellent volume with poor quality or vise-versa. Many times harvest dates are dictated by various agricultural program rules, so be certain you understand what factors might dictate your harvest dates. Handling and exposure to moisture can also be a major factor in grass hay quality.
- Value. Value can be determined by checking your hay type and quality against local markets and auction companies. Sales reports are fairly standardized and reported categorically as type of bale (i.e. large round, small round, large square, etc.), quality [supreme, premium, good, fair or utility (or similar terminology)], and price is reported as dollars per ton (not dollars per bale).
- Tonnage or lbs. per bale. Most producers have an estimate of what size of bales their baler averages. Some balers may even be equipped with scales. In many cases, round bales generally weigh about 1,000 – 1,200 lbs. (roughly ½ ton). However, balers can be variable and landowners and producers should work together to verify the average bale weight.
- Bale count. How many bales were actually produced?
- Producer investment. Harvesting requires an investment into labor, equipment, and fuel. Harvest investment of $20 - $25 per bale is not uncommon, but again landowners and producers should mutually agree upon this value prior to harvest.
Once the above parameters are determined, a simple formula can be used to calculate your contract pricing at the time of harvest.
Source: Pete Bauman