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47 Posts
Chemicals
Labor
Fertilizer
Prop Tax
Equipment Insurance
Diesel
Net wrap
What else is there?
Labor
Fertilizer
Prop Tax
Equipment Insurance
Diesel
Net wrap
What else is there?
Figuring Cost per Roll
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620 Posts
Equipment planned maintenance (normal stuff oil, grease, filters, blades, etc)
Equipment unexpected repairs (bearings, belts, tires, cutter bars, gearboxes, etc)
Equipment purchase
Just to add a few more....
Equipment unexpected repairs (bearings, belts, tires, cutter bars, gearboxes, etc)
Equipment purchase
Just to add a few more....
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47 Posts
Iv been doing some calculations on 1000-pound roll cost.
and the cost per roll numbers have absolutely awoken me.
I'm going to submit an example cost per roll calculation in this thread soon and when you have time, I'd like you guys to tear it apart, critique it, correct it, etc.
I suspect yall will most likely remind me of cost that im not even thinking of.
Will return soon with calculation.
Thanks!!
and the cost per roll numbers have absolutely awoken me.
I'm going to submit an example cost per roll calculation in this thread soon and when you have time, I'd like you guys to tear it apart, critique it, correct it, etc.
I suspect yall will most likely remind me of cost that im not even thinking of.
Will return soon with calculation.
Thanks!!
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47 Posts
Lets take a look at our fictional character "John DuGood"
John has a full time job, has a little money saved up, and wants to get into the hay business.
He sets his sights on buying a 50 Acre Tract, that is magically already planted and ready for Bermuda hay operation. 500k
He decides he is going to go all American and get John Deere hay equipment, maybe 200k worth of: 2 Cab tractors with loaders, cutters, a rake, tedder, baler, gooseneck, spray rig Maybe 250k....
John also decides to have a barn built to hold about 600 rolls, fully enclosed and graded with dry floor. say 100k
Now,
to make this easy, for our calculation to follow, lets suppose that ALL of the ABOVE is free, that's right, absolutely free for his use. (though he will have to pay property taxes and property and equipment insurance in this example)
Its January 1st.
So he adds up what he thinks he'll spend during the year:
$10,000 Chemicals (maybe 2 pre emergent applications, a glyphosate application, and figures in a fall army worm treatment.)
$10,000 Unexpected/Repair/Maintenance/Accident, Etc.
$7,500 Labor (if exist), suppose 250 tractor hours (not including "hook up and grease gun dance" prep) the whole year.
$45,000 Fertilizer
$3,000 Property Tax
$5,000 Prop and Equipment Insurance
$5,000 in diesel
Current totals here: $85,500
Now lets take the average annual yield per acre of Bermuda when well maintained and fertilized: 6 tons/ acre
Now lets calculate an expected yeild in 1000 lbs rolls. 50 acres X 12,000lbs. = 600,000 lbs = 600 rolls per year
Now we take our annual cost (assuming free equipment, land, and barn) of 85,500 and divided that by 600 rolls
and we get a cost (a break even cost) of $142.50 per roll
SO.
If John sells all 600 rolls for 120 each, he will make (-lose): 142.5- 120 = 22.5 loss per roll x 600 rolls = -13,500 per year
Selling all 600 rolls @ 120.00 each, nets John a loss of -13,500 per year. With free equipment, barn, and Land....
John has a full time job, has a little money saved up, and wants to get into the hay business.
He sets his sights on buying a 50 Acre Tract, that is magically already planted and ready for Bermuda hay operation. 500k
He decides he is going to go all American and get John Deere hay equipment, maybe 200k worth of: 2 Cab tractors with loaders, cutters, a rake, tedder, baler, gooseneck, spray rig Maybe 250k....
John also decides to have a barn built to hold about 600 rolls, fully enclosed and graded with dry floor. say 100k
Now,
to make this easy, for our calculation to follow, lets suppose that ALL of the ABOVE is free, that's right, absolutely free for his use. (though he will have to pay property taxes and property and equipment insurance in this example)
Its January 1st.
So he adds up what he thinks he'll spend during the year:
$10,000 Chemicals (maybe 2 pre emergent applications, a glyphosate application, and figures in a fall army worm treatment.)
$10,000 Unexpected/Repair/Maintenance/Accident, Etc.
$7,500 Labor (if exist), suppose 250 tractor hours (not including "hook up and grease gun dance" prep) the whole year.
$45,000 Fertilizer
$3,000 Property Tax
$5,000 Prop and Equipment Insurance
$5,000 in diesel
Current totals here: $85,500
Now lets take the average annual yield per acre of Bermuda when well maintained and fertilized: 6 tons/ acre
Now lets calculate an expected yeild in 1000 lbs rolls. 50 acres X 12,000lbs. = 600,000 lbs = 600 rolls per year
Now we take our annual cost (assuming free equipment, land, and barn) of 85,500 and divided that by 600 rolls
and we get a cost (a break even cost) of $142.50 per roll
SO.
If John sells all 600 rolls for 120 each, he will make (-lose): 142.5- 120 = 22.5 loss per roll x 600 rolls = -13,500 per year
Selling all 600 rolls @ 120.00 each, nets John a loss of -13,500 per year. With free equipment, barn, and Land....
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I have seen this analysis done before and it is the reason why more people get out of hay than get into hay. I think most of the guys making money are not focusing on Round Bales. Small squares make more money. I think they have bought their equipment incrementally and took advantage of 179 tax benefits along the way. I also think many inherited land, barns or equipment as an advantage. Some are feeding livestock so they are going to make hay to reduce their feed costs. I know many haymakers that are given hay fields to harvest for owners that lower their overall costs. So, I know it is possible to make money but it is not possible to make money by buying all equipment and incurring all expenses in one year. With so many farmers/ranchers retiring, there are opportunities to make money. I would argue that with any startup business, you have to come up with a 5-10 year plan and not a 1 year plan. Almost no business can make that work in one year but especially farming. Farmers are also part-time real estate investors and that has to be taken into account as well.
It is a tough business, but I got to believe that not everyone on this forum are losing that much money. Round bales are targeted at cattle in my area and they just don't pay. I can't even get $50 for a 4x5 900 lb bale with alfafla mix. I do agree that young farmers starting with nothing have a very hard road. I do know of a young guy in my area that didn't start with much and does about 30,000 small squares and makes a living off of 300 acres mostly rented. If your market doesn't pay then you definitely have to move on.
I do think your exercise is a very good idea. Many don't know their input costs and other than the tax benefits and land appreciation, you have it covered pretty well.
It is a tough business, but I got to believe that not everyone on this forum are losing that much money. Round bales are targeted at cattle in my area and they just don't pay. I can't even get $50 for a 4x5 900 lb bale with alfafla mix. I do agree that young farmers starting with nothing have a very hard road. I do know of a young guy in my area that didn't start with much and does about 30,000 small squares and makes a living off of 300 acres mostly rented. If your market doesn't pay then you definitely have to move on.
I do think your exercise is a very good idea. Many don't know their input costs and other than the tax benefits and land appreciation, you have it covered pretty well.
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47 Posts
Lets suppose its again January 1st, One year later, in our above example:
There is another gentleman on a nearby farm, a Cattleman "David Brown" who is livestock only, and he has been considering getting into rolling hay to save on cost, or so he suspects.
He bought all of John DuGood's hay last year at 120.00 per bale, and tells people around town that "120.00 is just too high for a respectable man like myself to pay for a roll of hay"
So, He whips out his pencil and learns it will cost him the exact same amount in annual operation cost (in our absolutely free land, equipment, and barn example) as it will cost John DuGood, to make the same quality of hay.
Then he thinks to himself, "why would I create bales at $142.50 per roll, when I can buy it off guys that will make it at a cost of $142.50 per roll and then rush to sell it to me for $80-$120 per roll*?"
He correctly resolves to his decision: "Ill make/save $22.50- $62.50 per roll, by buying the hay and let John DuGood and other haymakers like him take the loss, that they aren't yet aware of, or are in denial of."
We have an industry wide cost calculation issue guys.
How can we spread the word?
For those interested:
This is how the market got this way:
Once upon a time several guys, on several farms, wanted some machines really bad and took out a big loan and made alot of hay.
But as each haymaker finally figures he will get out of the business, he decides some money for the hay in his possession, even unrealistically low money, is better than nothing, and so this unrealistic hay market appears magically for the cattleman.
The market acts like this:
It is as if someone bought another person's labor for a year, but when it doesn't sell as hoped, the person in control of the other's labor has them picking weeds all day long for 10 dollars a day.
The workers says to the labor-buyer: "Boss, you aren't making any money selling weed-picking at 10 dollars a day, in fact your losing money fast!"
and the boss replies "That's right!, but iv already paid for your labor in full for a year, I cant get it back now, and 10 dollars sales today is better than nothing"
And on and on, it seems to go.
There is another gentleman on a nearby farm, a Cattleman "David Brown" who is livestock only, and he has been considering getting into rolling hay to save on cost, or so he suspects.
He bought all of John DuGood's hay last year at 120.00 per bale, and tells people around town that "120.00 is just too high for a respectable man like myself to pay for a roll of hay"
So, He whips out his pencil and learns it will cost him the exact same amount in annual operation cost (in our absolutely free land, equipment, and barn example) as it will cost John DuGood, to make the same quality of hay.
Then he thinks to himself, "why would I create bales at $142.50 per roll, when I can buy it off guys that will make it at a cost of $142.50 per roll and then rush to sell it to me for $80-$120 per roll*?"
He correctly resolves to his decision: "Ill make/save $22.50- $62.50 per roll, by buying the hay and let John DuGood and other haymakers like him take the loss, that they aren't yet aware of, or are in denial of."
We have an industry wide cost calculation issue guys.
How can we spread the word?
For those interested:
This is how the market got this way:
Once upon a time several guys, on several farms, wanted some machines really bad and took out a big loan and made alot of hay.
But as each haymaker finally figures he will get out of the business, he decides some money for the hay in his possession, even unrealistically low money, is better than nothing, and so this unrealistic hay market appears magically for the cattleman.
The market acts like this:
It is as if someone bought another person's labor for a year, but when it doesn't sell as hoped, the person in control of the other's labor has them picking weeds all day long for 10 dollars a day.
The workers says to the labor-buyer: "Boss, you aren't making any money selling weed-picking at 10 dollars a day, in fact your losing money fast!"
and the boss replies "That's right!, but iv already paid for your labor in full for a year, I cant get it back now, and 10 dollars sales today is better than nothing"
And on and on, it seems to go.
Hay business is tough. I have about 100 acres I farm, and typically get somewhere between 300-450 4x5 bales. I don't fertilize, use herbicide, cultivate or do anything other than repair hog damage to prevent my head from hitting the top of the cab roof and destroying my equipment. I'm planning on trying some herbicide and fertilizer sparingly in select fields this year, but can't really justify the extra time or the expense. I started doing it myself about 4 years ago after having Hay Guys the 6-8 years before that. I have never turned a profit. Tax lady showed a $10k loss last year. I honestly can't imagine I will ever turn a profit. No one around me wants to pay any extra for quality, all they seem to really care about is delivered cost per bale for however many they want, and it's a lot cheaper than the prices listed above. I mostly do it to keep my place looking good, I save a lot of taxes by being a terrible business owner, to justify my cool big boy toys, and the look on my friends faces when they come out to help for a day and almost die. Parts/Repairs/diesel costs kill me every year, and I already owned the land, one tractor, shredders and a skidsteer with several implements before I went into the hay business., I'm already looking to replace my cutter and rake, as both need constant welding and repairs to keep using. I fix everything myself, sending anything to the dealer scares the hell outa me cost wise, and I probably spend almost as much time doing repairs and maintenance as I do in the fields. Seems like most around me cut hay because they don't want to have to buy hay for their own cows and just sell the extra. Every piece of equipment I have was used, and I have no idea how people buy new equipment and ever turn a profit! I've easily spent about $150k on equipment in the last 6 years, 1 bigger tractor, 9K bale baler, crappy rake, forks for 3 different loaders that none share the same type, dually, trailer, fertilizer spreader (actually bought new and have never used it yet), tree pulling/clearing implements for skid steer, and a pole barn I built myself as cheaply as I could. Your always looking to replace new equipment or get something new. Last year tires cost me a fortune. Anyone got a not already worn out 12 wheel rake for sale in the north Texas area?
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202 Posts
A hay cartel and hay union would be great, but as you point out, hard to do.
Here's a real example in my area. A cattle guy buys hay equipment to do his own hay so he doesn't have to wait on a custom baler. Neighbor says can you bale my 5 acre field for free so I don't have to mow it. Anything he makes off of the hay equipment is incremental income and he isn't real busy in the summer time anyway. Gets 15 round bales 1st cutting. No land rent, fertilizer, preservative, etc. He has fuel and time invested mostly in his eyes. Equipment was old farm equipment and maybe has $15k in a mower/rake/round baler and maybe even a tractor. He spends 2 hours mowing, 1 hour raking, 1 hour baling. Plus 5 gallons/hour of fuel or $100 in fuel. His out of pocket expenses for time/plus equipment at $40/hour ($20 for equipment and $20 for time per hour) is $160 plus his $100 in fuel. He sells the 15 bales for $40/bale. He has $260 plus twine/oil/filters/ etc. and let's add another $40 more or a total investment of $300. He sells for $600. He waits and does a late second cutting and gets another 15 bales and doubles his money again. It is just gravy money and incremental income and he made $600 for the season for 8 hours of work. That's what we all compete against, a guy getting incremental income which sets the price lower. As well, the cattle guy decides to have his teenage son do the work. Kid makes $600 for 8 hours of work and thinks he has died and gone to heaven. Had fun driving a tractor too.
Next thing you know there are 5 guys in your area wanting you to bale 5 acre fields for free. I think we are up to almost 50 acres of "free' land rents and won't take anymore unless they agree to let us plant higher quality hay, if the field can support alfalfa. The lower quality round bale hay hurts us in selling our better quality round bale hay.
The way we have found to make better money off of cattle people in our area is to be their custom round baler. Some can cut and rake but don't have the round baler. We can bale 30 bales per hour, if properly raked, at $14/bale or $420/hour. If we cut and rake then it is $30/acre for both. Of all our hay making, this is the most lucrative on a per hour basis but it only represents 20% of all revenues. If you mix in custom baling, your own harvested baling and free plots of land with lower cost equipment, the profit becomes achievable, even competing against guys with incremental hay income.
From what I have determined in our hay business, if you want to make a living off of making hay, you have to make high quality hay and sell a lot of small squares. Nothing else pushes the pencil in the right direction, although I am sure there are others on this forum that have a niche and don't do a bunch of small squares. If you could sell to a Diary farmer then that would be one way to make money off of the big squares.
Small squares have been labor intensive in the past and hard to find part-time help to harvest. With the accumulators and grapples, that problem is disappearing and I think small squares are making a big comeback. Of course, automation will drive the prices down, but the western drought is driving prices up.
All businesses have this same challenge and not related to just hay making. Keep thinking about how to make your hay business profitable and it will most likely happen.
Here's a real example in my area. A cattle guy buys hay equipment to do his own hay so he doesn't have to wait on a custom baler. Neighbor says can you bale my 5 acre field for free so I don't have to mow it. Anything he makes off of the hay equipment is incremental income and he isn't real busy in the summer time anyway. Gets 15 round bales 1st cutting. No land rent, fertilizer, preservative, etc. He has fuel and time invested mostly in his eyes. Equipment was old farm equipment and maybe has $15k in a mower/rake/round baler and maybe even a tractor. He spends 2 hours mowing, 1 hour raking, 1 hour baling. Plus 5 gallons/hour of fuel or $100 in fuel. His out of pocket expenses for time/plus equipment at $40/hour ($20 for equipment and $20 for time per hour) is $160 plus his $100 in fuel. He sells the 15 bales for $40/bale. He has $260 plus twine/oil/filters/ etc. and let's add another $40 more or a total investment of $300. He sells for $600. He waits and does a late second cutting and gets another 15 bales and doubles his money again. It is just gravy money and incremental income and he made $600 for the season for 8 hours of work. That's what we all compete against, a guy getting incremental income which sets the price lower. As well, the cattle guy decides to have his teenage son do the work. Kid makes $600 for 8 hours of work and thinks he has died and gone to heaven. Had fun driving a tractor too.
Next thing you know there are 5 guys in your area wanting you to bale 5 acre fields for free. I think we are up to almost 50 acres of "free' land rents and won't take anymore unless they agree to let us plant higher quality hay, if the field can support alfalfa. The lower quality round bale hay hurts us in selling our better quality round bale hay.
The way we have found to make better money off of cattle people in our area is to be their custom round baler. Some can cut and rake but don't have the round baler. We can bale 30 bales per hour, if properly raked, at $14/bale or $420/hour. If we cut and rake then it is $30/acre for both. Of all our hay making, this is the most lucrative on a per hour basis but it only represents 20% of all revenues. If you mix in custom baling, your own harvested baling and free plots of land with lower cost equipment, the profit becomes achievable, even competing against guys with incremental hay income.
From what I have determined in our hay business, if you want to make a living off of making hay, you have to make high quality hay and sell a lot of small squares. Nothing else pushes the pencil in the right direction, although I am sure there are others on this forum that have a niche and don't do a bunch of small squares. If you could sell to a Diary farmer then that would be one way to make money off of the big squares.
Small squares have been labor intensive in the past and hard to find part-time help to harvest. With the accumulators and grapples, that problem is disappearing and I think small squares are making a big comeback. Of course, automation will drive the prices down, but the western drought is driving prices up.
All businesses have this same challenge and not related to just hay making. Keep thinking about how to make your hay business profitable and it will most likely happen.
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Apparently, you have a lot of people wanting incremental revenue around you as well! That's Canadian dollars too! That's like $15-$22 USD per bale.
I would think after so many years they would have to throw the towel in at those rates.
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I'm going to go out on a limb with my theory but I'm convinced efficiency killed the farms as well as most things. My thought is that john dugood and David Brown along with Susie Snowflake all have all have 15 cattle that cost 1000 a month to feed and each get a return of 1000 a month. Well then Dave buys a newer more efficient machine and can now do 20 cows for the same money and work. Well he can sell for cheaper and still make the same profit so everyone buys from him and the other two people can't afford to upgrade for any kind financial reasons (kids, health, etc.) so they say I'm out. Well now Dave is the only one raising cattle in the area. But everyone is used to paying that cheaper amount so when input prices go up he's kind of locked in profit wise. So what does he do? Buys more cattle to make up the Lost income. Now instead of 20 cows for the same money and work as 15 he has to have 30. Return per unit is down.
Well now Susie snowflakes children would like to get into the cattle game. But there's no way they'll ever make money farming the old way where 15 would make the thousand a month , you need 30 and that's a huge undertaking for someone just starting out. So they do all the numbers and realized that it's not really a business to be in for money, all the while Dave slowly keeps getting larger to just cover the costs of having them. By now he's so large and got so much invested he almost can't quit because he still needs to make payments on the newer larger equipment.
My thought was having every Farm back in the 50s and '60s have a few pigs, a few chickens, a few cows, doing beans, hay and corn kind of kept the supply and demand in check. If I was selling a bale of hay for $7 and the neighbor was selling for $6 they go to the neighbor which will drive my price down. Nowif I wanted $5 a bale and everyone is selling for $6 it would drive my price up. But when you're the guy just starting out trying to get $5 a bale and the guy that's been doing it for 30 years and slowly built up his equipment to be more efficient can sell it for $4.50 it slowly Cuts you out unless you get big. And that guy might only be making 25 cents a bale.
Now I understand there's a lot of input costs that aren't in our control and you had to adapt just to cover those costs. But I'm sure you can apply that efficiency to just about anything. The fewer places there are to buy things the supply goes down and demand goes up.
I could be completely wrong in my theory and just make stuff up in my head to try and make somebody like myself that wants to farm for a living feel better about how hard it is to get into it. Especially with a thread like this where the guys that have been doing it for a long time say it never makes any money. I'm not going to stop I'm too stubborn.
Well now Susie snowflakes children would like to get into the cattle game. But there's no way they'll ever make money farming the old way where 15 would make the thousand a month , you need 30 and that's a huge undertaking for someone just starting out. So they do all the numbers and realized that it's not really a business to be in for money, all the while Dave slowly keeps getting larger to just cover the costs of having them. By now he's so large and got so much invested he almost can't quit because he still needs to make payments on the newer larger equipment.
My thought was having every Farm back in the 50s and '60s have a few pigs, a few chickens, a few cows, doing beans, hay and corn kind of kept the supply and demand in check. If I was selling a bale of hay for $7 and the neighbor was selling for $6 they go to the neighbor which will drive my price down. Nowif I wanted $5 a bale and everyone is selling for $6 it would drive my price up. But when you're the guy just starting out trying to get $5 a bale and the guy that's been doing it for 30 years and slowly built up his equipment to be more efficient can sell it for $4.50 it slowly Cuts you out unless you get big. And that guy might only be making 25 cents a bale.
Now I understand there's a lot of input costs that aren't in our control and you had to adapt just to cover those costs. But I'm sure you can apply that efficiency to just about anything. The fewer places there are to buy things the supply goes down and demand goes up.
I could be completely wrong in my theory and just make stuff up in my head to try and make somebody like myself that wants to farm for a living feel better about how hard it is to get into it. Especially with a thread like this where the guys that have been doing it for a long time say it never makes any money. I'm not going to stop I'm too stubborn.
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I applaud your determination, but as always, we must work smart and strategically. Your theory is sound and the pricing of hay is probably a combination of many factors, some even being regional in nature.
I know you can make money at it but it takes a long time to make the big money, especially if you capitalize it all yourself. They say you realize a lot of your profit from self-employment when you sell the business or you die and your family gets the windfall.
I know a guy near me that drove a school bus and farmed starting in the 60s. Modest house and modest looking farm buildings and equipment. He survived the 80s with his school bus job, but barely. I figured up his net worth on his land alone and it is probably $15 Million dollars now. He did it making hay, row crops and raising livestock. His kids can't get him to take a vacation.
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As you can see from the responses, so many considerations when trying to set up a cost system. This is also where a good CPA who knows his way around a farm is worth his weight in gold. Also, know that what you need to calculate your cost per bale for evaluation purposes may be (most likely) different than what one would calculate for tax purposes and/or accounting purposes.
Me? I lost money on every bale but made up for it on volume.
Me? I lost money on every bale but made up for it on volume.
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what do you suspect for 50 acres? ill recalculate it.
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How many cuttings are you including in your calculations?
Interesting discussion.
Interesting discussion.
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I thought so too!
3 cuts @ 2 ton/acre each I think is the most common university standard for calculations.
(edit: I remember later, that statement is going to change with geographic location)
I think if we can educate our fellow haymakers we can come out of poverty together!
So its known, "most charge under cost, either knowingly or unknowingly, and that's the way it is and always has been", we say.
I get that...
Lets change that , perhaps if they knew, they wouldn't do that
P.S. Since I havent mentioned yet, Thanks for your replies guys! Means alot!
3 cuts @ 2 ton/acre each I think is the most common university standard for calculations.
(edit: I remember later, that statement is going to change with geographic location)
I think if we can educate our fellow haymakers we can come out of poverty together!
So its known, "most charge under cost, either knowingly or unknowingly, and that's the way it is and always has been", we say.
I get that...
Lets change that , perhaps if they knew, they wouldn't do that
P.S. Since I havent mentioned yet, Thanks for your replies guys! Means alot!
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