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2012 Fertilizer Prices Impact Hay Production Costs

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This article was updated in June 2012.

Most hay producers want to produce hay as profitably as possible. Establishing economic goals is the first step towards profitability. Once goals are established, farmers benefit by developing a management mindset that is centered on a business approach. This requires understanding the costs of time, effort and inputs needed to produce and market the product. Following is an example of how to calculate hay production costs in the south-central Oklahoma, north-central Texas region.

Hay production costs can be reported on a dollar per ton basis; however, this measure can easily be converted to a dollar per bale basis once the size of the bale is known.

In our example, we will assume a 1,200-pound round bale, which is common for the region. A key expense is the cost of soil nutrient removal (replacement). Although the amount of nutrient removal varies with forage type and quality, Noble Research Institute consultants estimate that 1 ton of bermudagrass hay will, on average, remove from the soil 46 pounds of nitrogen, 12 pounds of phosphorus and 50 pounds of potassium. Best management practices include replacing these nutrients in the form of fertilizer. Using late spring 2012 regional fertilizer prices, the costs associated with soil nutrient removal (replacement) are reported in Table 1. Farmers may either estimate soil nutrient removal costs (as explained above) or may use the actual cost of fertilizer applied.

Farmers also incur harvest expenses for cutting, raking, baling and transporting hay from the field. Custom rates1, 2 are reported for each of these activities and are a good source when estimating a budget; otherwise, include machinery and equipment costs. Table 2 reports the total cost of production for our example. Depending on management intensity, farmers may also have expenses associated with herbicide application, storage and additional labor that need to be included in total cost of production.

The cost of production is also your breakeven price, meaning that you must at least receive this price to pay all expenses. If you are selling hay to other producers, knowing the break-even price is particularly important to determine the sales price. Revenue exceeding this breakeven price is profit. Farmers who sell hay for less than the breakeven price are foregoing potential revenue and are losing the opportunity to participate in other agricultural activities/land conservation practices that may be more economically viable. I encourage each farmer to determine the price needed to breakeven for your hay operation. It is not too late as you continue to sell hay throughout the fall.

1 Doye, D. and R. Sahs. Oklahoma Farm and Ranch Custom Rates, 2011-2012. Oklahoma Cooperative Extension Service, Extension Fact Sheet CR-205, November 2011.
2 Rundle, D. et.al. 2011 Texas Custom Rates Statistics. United States Department of Agriculture National Agricultural Statistics Service, April 2011.