Making your own hay not profitable

cowboydoc · Jun 19, 2004

I'm not trying to discourage anyone from doing anything. I was just showing the study. People do things everyday that don't make any money. We all know farming doesn't pay much.

As far as labor and land how can you not count it even if you own the land? If you can farm the land then the land would be worth x dollars if it was rented out. That was brought up in this study and interest that would be paid on land was NOT figured in. It was based on the average price a person would get for the land if it was rented out. Also you have to figure you labor. If you put in 40 hours getting in a cutting of hay then that is still labor. It's your time and it has to be figured into the cost. I mean you can figure zero into the equation if you want but there is still your labor and if you are going to figure out the actual cost of production it's worth something.

Woodbeef · Jun 20, 2004

Over the years I've tended to not put much belief into these types of studies. The more of them I read the more I see that most tend to totally lack common sense,and try to put everything into neat little boxes explained by mathematical equations. Which just does not work in the real world!! Statics are way too easy to be manipulated to say whatever the researcher wants them to say.

Just call me different......But I do like knowing what my hay contains,when it was baled,if it was rained on,and how long it sat outside. These are all hard things to know when you are buying hay......I don't need the best of hay protein wise,but I just don't like rained on hay!!

sweettractors · Jun 20, 2004

Over the years I've tended to not put much belief into these types of studies. 

I am with you on this one Woodbeef. Another point not addressed in the stats given, is the The tax breaks on Section 179 "Election to Expense" or depreciation for capitol items bought (Cattle, Tractors Machinery, farm Buildings etc). For Example: If a Family has the husband and wife both working and filing tax returns jointly on say, $60,000 Gross and they are in the 30% tax bracket? Dont that mean, that if they buy $30,000 in capital items, that the income that will be taxable would drop to $30,000 and also at a lower rate? If this is the case,This direct savings in taxes should be added in these stats?--Ken Sweet
Sweet Farm Equipment LLC *New First Choice 5 -6-7 ft Double Action Sickle Mowers in Stock*

Libertine · Jun 20, 2004

cowboydoc:

The national average cost to produce a ton of hay was $66.67 when all costs were figured in. The average cost nationwide to buy hay was $63/ton. 

IF true, and if there's not more too it, might we reasonably predict the supply will decrease and/or prices increase?

Land $20.14 . . . 8.16 tons/year . . . ton of hay was $66.67

My primitive arithmetic tells me that a yield of 5% M/L is imputed based on $1,500-$2,000 land. Is this correct?

Labor $21. 

I suspect that much of small farming operations (unlike yours) is, like many small businesses, buying a job for the owner/operator. The "profit" comes from capital issues (improvement, appreciation etc). Working for someone else, to "earn" $21 requires an income of perhaps $35-$40 before various income & etc taxes. Raising & selling (or better yet feeding it) generates "receipts" which are taxed differently than "income" from employment.

This study included a five state region as well to include Texas, Oklahoma, New Mexico, Kansas, and Missouri. 

Question? I have heard that a few years ago there was a drought in Missouri that reduced hay production. Cattle (& horse) operations depending on locally purchased hay had to go out of state because local producers got greedy and raised prices in some cases to over $200 ton (which often didn't get sold). Some operators either closed up or reduced herds. Then better rain created good yields which, combined with leftover product and reduced demand crashed prices. True?

As you know, I claim no "practical" experience in this, but strictly from a logical standpoint, it would seem to me that someone with a reduced herd, producing his own hay, would be less subject to the variations in the market. Thus even if such hay production was generating only an imputed labor income, he would be safer over time. (In more abstract, economic terms, increased vertical integration of the operation reducing fluctuations in external inputs). Any thoughts on that? Am I missing something here?

JEH

cowboydoc · Jun 21, 2004

Another point not addressed in the stats given, is the The tax breaks on Section 179 "Election to Expense" or depreciation for capitol items bought

The tax breaks are not addressed because that is completely variable for everyone. That doesn't bring the cost of the hay down any. The expenses were still there to make it. Yea I get tax breaks just like everyone else. But I also know that if I had put the money I had earned over the last 10 years into retirement instead of putting it into ranching/farming I could have already retired. But I love doing this and I work two jobs now so that I can pay it all off and just ranch.

Another point is that in order to claim that tax write-off you dang sure better have some evidence to back it up. This is especially true on smaller operations that operate at a loss. If you're making $60,000 in another job and buy $30,000 in equipment you better be able to show how you were ever going to make a profit with that $30k. The courts are full of hobby farmers paying big bucks for situations just like this because they weren't prepared and didn't keep exact records. If you're operatin a small farm and claiming losses you probably will get audited. If you do and you don't have records like were shown in this study then you are going to lose. You also really should consider your labor as well. That is one of the primary obligations that the IRS places on these small operations, how much time did you spend doing this.

This is a study that shows over 10 years in 5 different states how they did and what their costs were. Instead of tearing the study down, which there is no point to that it's just the #'s for what people paid for expenses, use it to improve your own production and compare it to how you are doing.

cowboydoc · Jun 21, 2004

Libertine,

I'm not sure of what land value they inputed. It was not indicated in the study. I don't think it's reasonable to predict anything in the commodity market. /forums/images/graemlins/tongue.gif I have thought for years that hay would get more expensive. It's expensive to make it in any quantity, junk equipment doesn't work very well when you're producing any amount of acres. You might be able to keep it going on smaller operations but it's going to take alot of work. Input costs keep rising, labor costs keep rising, if you can even find labor to do square bales. Hay costs today are pretty much the same today as they were 15 years ago. What else can you buy today where the costs in alot of the inupts have doubled yet the price of the product remains the same?

I'd have to disagree with you on the labor issue. I have one hired guy and most of my work is done myself. My ranching is a small business. I have nothing compared to what most farmers/ranchers have. If you're farming much over 500 acres it's next to impossible to do all the work yourself, even on a small operation all the work that has to be done is next to impossible to do on your own. You have to hire people at times or all the time. Farming is also pretty cheap labor. You aren't even required to pay minimum wage. I would have to disagree on your $21 costing $35-40 as well. I don't even have that kind of #'s in my real job. Maybe if you were paying health insurance, retirement, etc. but I don't know of any farmers that pay that. At most you'll pay FICA and maybe work comp.

Yes there was a drought and hay was more expensive. But that is evened out with years where there was more than enough hay and the price was way down. Also those people in MO had no hay to produce! So their costs of production would have zero but they would have had bottom line costs taht were much higher because they had to buy hay. The comment about them getting greedy is completely false. There was flat no hay to be bought period. It was the auctions that drove the prices up not the farmers. I had several guys from MO that usually produced big amounts of hay coming up to buy truckloads. They just had no hay in the state at any price. The prices didn't crash. They just went back to more normal levels. It was just a supply and demand thing. If you were producing your own hay you would have still been in the hole because there was no hay to produce even if you had your own place.

I dont' believe that you are safer at all. Considering the overall price of hay over the last ten years you would have been much better off to buy hay, especially on a small operation. Producing your own hay you are open to much more volatility. You may do everything right and if the weather doesn't cooperate you may lose your whole crop. The last estmate we did we are already at $50,000 loss in hay this year. The price hasn't fluctuated at all because there is still the rest of the season. You also have to contend with bugs, labor, machine breakdowns, input costs, etc. It's like being a day trader. There is no rhyme or reason to what happens. You can do all your homework, have everything ready, and you still lose. For our operations the plusses of making our own hay will factor out over time. But if you're a small operation you are much, much better off buying hay and going into extended grazing, rotational grazing, etc. We have turned alot of hay ground into this and the initial #'s look very promising. You don't worry about weather, you don't have fertilizer costs, you have very little machine and input costs, and profits are much better.

slowrev · Jun 21, 2004

Higgy, I think you have it figured out. The Texas study was probaly figuring if you buy all new equipment including tractor. That might be 50,000 or so for a small setup.

I like the way you do business. I am currently sharing haying equipment ( bought used ) with a couple of good friends. This works well if you have good friends that you trust. We have about 5,000 in cutter, round baler, small square baler and rake. We all work on them and share the parts costs. We do each use our own tractors though. Looking for a cheap used tedder now. We are doing about 150 acres of hay between the 3 of us. They both have cattle, I don't but usually swap off or sell my hay to someone, and actually make some money or get free/cheap beef to eat. I think I may be able to trade one of my cuttings of hay for a good used tedder, still bargaining with a guy on that though.

cowboydoc · Jun 21, 2004

I guess if you consider this figured out:

"Will I make money, no will it help to demonstrate ag useage of the land and equipment and help maintain the my tax base as ag yes, does it lower the overall cost of feeding, ahhh maybe a little tiny bit."

I'm not talking about places like this. Sure you can buy some cheap equipment, cut 10 acres or so and enjoy it. But that's alot different than the guy that's trying to feed his family off of the farm. Sorry but I approach this from the standpoint of how am I going to make a living off of this in another 5-10 years.

The study was based on an average of 300 tons/year feeding 150 or more cattle. It did not consider a 30 or 40 acre hobby farm. It considered people that were actually trying to get all they could from the land and make a living. If all you want is an ag exemption and a tax break that's not what the study was designed to show. It was meant to be a tool to help make educated decisions on the best way to turn a profit.

slowrev · Jun 21, 2004

CowboyDoc,
Both of my haying equipment partners make ALL of their living off of farming.

We just don't do the huge stuff like you do.

cowboydoc · Jun 21, 2004

Yea but surely they don't make a living off of feeding cattle the 150 acres that you do hay on do they? I'm sure they farm other ground, have pasture, have a sizeable herd, etc.

And yes in partnerships like you're talking about is how alot of farmers and ranchers today are making things go. They are pooling their resources and buying bigger and better equipment that is being shared by multiple families. It's an excellent way to make things work out.