Pricing Standing Hay
What is standing hay worth and what is a fair price? The price of standing hay is what the market determines it is, not necessarily what we think it should be. From the sellers point of view, the price should cover the cost of production and provide a profit. However, there are limits to what buyers can and will pay that are related to the price of livestock, as well as the availability and price of other forages.
There is a tremendous range in standing hay prices. In recent years, we have seen prices from zero to over 3¢/lb of dry hay produced. The cost of production for a hay crop is typically at least 2¢/lb. However, the market does not always recover this. Some years, standing hay might trade from 1.5 to 2¢/lb for first-cut. Hay prices are often extremely volatile until after 1st cut, when there is a better idea of what the hay supply will be for the year. Similar to 2006 when there was a good hay crop, supply can exceed demand, reducing the price paid for second- and third-cuts.
Supply & Demand!
When hay supplies are low during dry years or following winterkill, standing hay will be in demand and worth more. Poor pasture years, when hay is fed during the summer slump, also results in greater demand. The amount of spring inventory carryover from one year to the next can have a big impact. Lots of hay has been advertised for sale. There appears to be the potential for adequate hay in most parts of the province.
Higher Corn & Soybean Prices?
During years of higher corn and soybean prices, land shifts from hay to grain production, especially from some of the older, low yielding hay fields. Typically, hay prices will then increase in the longer term. A decade ago when we had some higher corn and soybean prices, we also saw a much stronger market for standing hay. Hay supplies became tighter, and some standing hay prices jumped up to as high as 3 or even 4¢/lb.
Factors That Affect Price
Considerations For The Seller
Sellers should start by determining their own cost of production per pound of standing hay. In an example budget, assume a $40 per acre land rental value, a four year hay crop, using typical custom rates and input costs, and a 6,000 lb annual hay yield in a 2-cut system. The cost of production for the standing hay in this example works out to about 2 cents per pound of dry hay, or $120 per acre per year.
Dont Forget P & K Removal
Forage has high fertility requirements and these costs are increasing. With a mixed stand, the value of phosphorous and potassium removal is close to 1 cent/lb. As an example, assuming a mixed stand with a modest yield of 3 tons per year, hay will remove about 36 lbs of P205 and 138 lbs of K2O, with a value of $56 (assuming P205 @ $0.40, K20 @ $0.30). Without manure or commercial fertilizer, the soil test will drop quickly. Assuming that it takes about 35 lbs/ac of P205 and 20 lbs/ac of K20 to move the soil tests by 1 ppm on some soils, after 5 years the P205 soil test could drop by 5 ppm and the K20 by 35 ppm.
Occasionally, standing hay is given away to avoid the down-side of leaving it in the field. The fixed costs, such as establishment, have already been paid regardless of whether or not the crop is harvested. As a minimum, a producer may want to recover the variable costs, which include the nutrient removal.
Considerations For The Buyer
Buyers should consider what their costs will be after the hay is baled. In this same example budget, swathing and raking costs 0.7 cents/lb, while large round baling costs about 0.8 cents. This means that the standing hay costing 2 cents per pound would result in a total cost of 3.5 cents, or $28 per bale for an 800 pound bale in the field. This may or may not reflect the local market. Also consider that in a standing hay transaction, the buyer assumes the weather risk of that hay getting rained on.
To accurately determine the pounds of hay sold it is helpful to weigh some bales or wagon loads. Pounds of haylage can be converted to a dry hay equivalent by adjusting for percent moisture.
It is important that you make your own assumptions and calculate your own costs to determine what you feel is an acceptable price. Then negotiate the best you can. Crop budgets and custom rates are available on the Ontario Ministry of Agriculture, Food & Rural Affairs website at www.omafra.gov.on.ca/english/busdev/analysis.html.
For more information:
Toll Free: 1-877-424-1300