How much is standing hay worth?
May 16, 2017
Very soon this question will pop up and will ask about selling a full year of production or a specific cutting. Getting a handle on how much either is worth is often just guess work. There is a better way.
First we need to set a price for hay after harvest and then subtract the cost of harvest to get the value of hay standing in the field. At this point someone asks "where do I get those prices and costs?" Let's get the hay price first. The U.S. Department of Agriculture regularly reports hay prices by location, type and quality. For instance, the Nebraska May 11, 2017, hay report shows supreme quality alfalfa, large square bales, sold for $150-155 per ton. Prices for other hay types and qualities are listed in the report. Some reports will include cane hay and cornstalks. All of the quality parameters for alfalfa and grass hay are listed in the report. The we site is: http://www.ams.usda.gov/market-news/hay-reports.
The USDA prices are for harvested hay so we need to subtract harvest costs from the reported hay prices. If a farmer or rancher has calculated their own hay harvest costs, that cost would be subtracted from the USDA hay price. If the farmer or rancher wants to calculate their cost of hay harvest, an available spreadsheet from Kansas State University, http://www.agmanager.info/ksu-machinery-costs, can be used to calculate a large number of machinery costs including hay harvest. Custom rates can be used as a proxy for hay harvest costs as well. Nebraska custom rates are published at: http://agecon.unl.edu/cornhusker-economics/2016/custom-rates. Other states publish custom rates as well.
So now we know what to pay for a ton of standing alfalfa (hay price-harvest cost). But we don't know how many tons are going to be harvested and payed for. The best way would be to weigh the hay harvested. Sometimes that isn't possible so a sample of the hay harvested can be weighed and then the total calculated. Another way that has been investigated is to count stems per square foot. A recent study in North Dakota showed that system has a 0.33 to 0.97 correlation to measured yield. Two of the locations had a high correlation and a third had a very low correlation. Thus stem counts may work sometimes. A third way is to scissor cut several random 1 square foot areas to get an average yield and then multiply by 43,560 to get a yield per acre. Don't forget to correct for moisture though.
Another question sometimes asked regards "how much should I pay for a specific cutting?" If weight is used for payment of the standing hay, then a buyer can pay only for what they harvest. Another way might be to use a percentage of a cash rental rate to pay for a hay cutting. In a three-cut system for alfalfa the first cutting yields 40 percent of total annual yield and the subsequent are 30 percent each. A four-cut system has 35 percent of the annual yield in the first cut, 25 percent in the second cut and 20 percent for the next cuttings. Thus if a buyer wants just the first cutting of a three-cut alfalfa field then multiplying a cash rental rate by 0.4 is way to calculate a price.
Of course the amounts calculated above are starting points in a negotiation. A fair price is the one that two parties agree upon.