Guidelines for EstimatingHay Production Costs 2016in Manitoba

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Date: January, 2016

This tool is available as an Excel worksheet at: or at your localis also available to help determine machinery costs.

Note: This budget is only a guide and is not intended as an in depth study of the cost of production of this industry. Interpretation and use of this information is the responsibility of the user. If you need help with a budget, contract your local MAFRD GO office.

Guidelines For EstimatingHay Production Costs - 2016

The assumptions on which the costs were calculated are clearly defined in the supporting pages. They were developed using a combination of recommended practices and methods followed by many producers.

These budgets may be adjusted by putting in your own figures. As a producer, you are encouraged to calculate your own costs of production for your alfalfa hay crops. On each farm, costs and yields differ due to soil type, climate and agronomic practices.

This guide is designed to provide planning information and a format for calculating the costs of producing a forage crop of 100% alfalfa or alfalfa grass mixture for the purpose of feeding livestock or export in Manitoba. General Manitoba Agriculture, Food and Rural Development (MAFRD) recommendations are assumed in using fertilizers and chemical inputs. These figures provide an economic evaluation of the crops and estimated yields required to cover all costs. Costs include labour, investment and depreciation, but do not include managmement costs, nor do they necessarily represent the average cost of production in Manitoba.

The Farm Machinery Custom and Rental Rate Guide www.manitoba.ca/agriculture

MAFRD GO Office.

Guidelines:Hay Production Costs 2

Manitoba Agriculture, Food and Rural Development

Year 1 Forage Year 1 Forage Annual (Years 2 to 9)Establishment 1 Establishment 2

$/acre $/acre $/ton $/pound $/acre $/acre $/ton $/pound Your Farm

A. Operating CostsForage Seed & Treatment $42.50 - - - $36.00 - - -Nurse Crop Seed - - - - $9.06 - - -Establishment (amortized) - $24.49 $8.16 $0.0041 - $21.75 $8.91 $0.0045Fertilizer $54.50 $54.50 $18.17 $0.0091 $72.27 $28.53 $11.69 $0.0058Herbicide/Insecticide $25.00 $0.00 $0.00 $0.0000 $25.00 $0.00 $0.00 $0.0000Fuel $13.56 $8.59 $2.86 $0.0014 $11.09 $5.98 $2.45 $0.0012Machinery Operating $9.83 $9.83 $3.28 $0.0016 $9.83 $9.83 $4.03 $0.0020Machinery Lease $2.40 $2.40 $0.80 $0.0004 $2.40 $2.40 $0.98 $0.0005Rental and Custom $8.00 $12.00 $4.00 $0.0020 $7.20 $9.76 $4.00 $0.0020Crop Insurance $5.80 $11.06 $3.69 $0.0018 $5.80 $9.17 $3.76 $0.0019Other Costs $5.00 $5.00 $1.67 $0.0008 $5.00 $5.00 $2.05 $0.0010Land Taxes $7.00 $7.00 $2.33 $0.0012 $7.00 $7.00 $2.87 $0.0014Interest on Operating $4.77 $3.71 $1.24 $0.0006 $5.24 $2.73 $1.12 $0.0006Total Operating $178.36 $138.58 $46.19 $0.0231 $195.89 $102.15 $41.87 $0.0209

B. Fixed CostsLand Investment Costs $37.50 $37.50 $12.50 $0.0063 $37.50 $37.50 $15.37 $0.0077Machinery Depreciation $28.08 $28.08 $9.36 $0.0047 $28.08 $28.08 $11.51 $0.0058Machinery Investment $7.02 $7.02 $2.34 $0.0012 $7.02 $7.02 $2.88 $0.0014Storage Costs $1.50 $1.50 $0.50 $0.0003 $1.50 $1.50 $0.61 $0.0003Total Fixed $74.10 $74.10 $24.70 $0.0124 $74.10 $74.10 $30.37 $0.0152Total Operating & Fixed $252.46 $212.68 $70.89 $0.0354 $269.99 $176.26 $72.24 $0.0361

C. Labour $30.00 $24.00 $8.00 $0.0040 $30.00 $24.00 $9.84 $0.0049

Total Costs $282.46 $236.68 $78.89 $0.0394 $299.99 $200.26 $82.07 $0.0410

Estimated FarmgatePrice $ per ton $80.00 $120.00 $70.00 $90.00Yield per acre (ton) 2.00 3.00 1.80 2.44Gross Revenue $160.00 $360.00 $0.0600 $126.00 $219.60 $0.0450

Marginal Returns Over Operating Costs ($18.36) $221.42 $73.81 $0.0369 ($69.89) $117.45 $48.13 $0.0241 Over Total Costs (Net Profit) ($122.46) $123.32 $41.11 $0.0206 ($173.99) $19.34 $7.93 $0.0040 Operating Expense Ratio 111.5% 38.5% 155.5% 46.5%

Breakeven Price Per TonOperating Costs $46.19 $0.0231 $41.87 $0.0209Total Costs $78.89 $0.0394 $82.07 $0.0410

Breakeven Yield (tons per acre)Operating Costs 1.155 1.135Total Costs 1.972 2.225

Value of Standing Hay ($ per pound) 3 $0.0249 $0.0236

Cost of TDN ($ per pound DM) $78.89 /ton = $0.0712 $82.07 /ton = $0.0815Cost of Crude Protein ($ per pound DM) $78.89 /ton = $0.2337 $82.07 /ton = $0.3584

1. Alfalfa establishment (without nurse crop) net cost of $122.46 (total cost minus estimated gross revenue) were amortized over 5 hay production years.2. Alfalfa-grass establishment (with oat greenfeed nurse crop) net cost of $173.99 (total cost minus estimated gross revenue) were amortized over 8 hay production years.

Hay Production Costs - 2016

TDN & Crude Protein Cost Analysis

Note: This budget is only a guide and is not intended as an in depth study of the cost of production of this industry. Interpretation and utilization of this information is the responsibility of the user.

3. Value of standing hay includes a 15% margin over costs (includes: establishment, fertilizer, pesticide, land taxes, 5% of fuel and labour, 50% of other costs, and 2.5% land investment costs.)

Profitability & Breakeven Analysis

Alfalfa Hay Alfalfa-Grass Hay

Production Costs Production CostsAnnual (Years 2 to 6)

Guidelines: Hay Production Costs 3

Manitoba Agriculture, Food and Rural Development

Alfalfa Hay

Alfalfa Grass Hay

A. Operating Costs/acre $138.58 $102.15B. Fixed Costs/acre $74.10 $74.10Total Costs/acre $236.68 $200.26

Cost per ton $78.89 $82.07(@ 3 ton/acre) (@ 2.44 ton/acre)

Estimated FarmgatePrice $ per ton $120.00 $90.00Yield per acre (tons) 3.00 2.44

Up Down Up DownPercent Price Variation 5% 10% Percent Yield Variation 10% 10%

Higher Price ($ per ton) $126.00 $94.50Lower Price ($ per ton) $108.00 $81.00

Higher Yield (tons per acre) 3.30 2.68Lower Yield (tons per acre) 2.70 2.20

Higher Margin Scenario - Price Up 5% and Yield Up 10%Gross Revenue / acre $415.80 $253.64Marginal Returns Over Operating Costs $277.22 $151.49 Over Total Costs (Net Profit) $179.12 $53.38Operating Expense Ratio 33.3% 40.3%

Lower Margin Scenario - Price Down 10% and Yield Down 10%Gross Revenue / acre $291.60 $177.88Marginal Returns Over Operating Costs $153.02 $75.72 Over Total Costs (Net Profit) $54.92 ($22.38)Operating Expense Ratio 47.5% 57.4%

Cost of Production (Cost per Ton) Scenario - Yield Up 10%Total Costs per acre $236.68 $200.26Higher Yield (tons per acre) 3.30 2.68Cost per Ton $71.72 $74.61Cost change / ton -9.1% -9.1%

Cost of Production (Cost per Ton) Scenario - Yield Down 10%Total Costs per acre $236.68 $200.26Lower Yield (tons per acre) 2.70 2.20Cost per Ton $87.66 $91.19Cost change / ton 11.1% 11.1%

Risk & Sensitivity Analysis

Note: This budget is only a guide and is not intended as an in depth study of the cost of production of this industry. Interpretation and utilization of this information is the responsibility of the user.

Guidelines: Hay Production Costs 4

Manitoba Agriculture, Food and Rural Development

Alfalfa Alfalfa-GrassYears tons/acre tons/acre

1 2.0 1.8 (establishment year)2 3.2 2.93 3.2 2.94 3.2 2.75 2.9 2.56 2.5 2.37 2.28 2.19 1.9

1011

Total Yield 15.0 19.5Average Yield 3.00 2.44Years production 5 8Years rotation 6 9

Alfalfa Alfalfa-GrassCrude protein DM (CP)% 19.2 13.1Energy DM (TDN) % 63.0 57.6As fed moisture % 12.1 12.6

1. Users are reminded to adjust fertilizer rates when making changes to forage yields.Forage yields are based on FA#6 average yields with an IPI of 1.25

Estimated Yield of Forage - Tons per Acre 1

Forage Analysis

Guidelines: Hay Production Costs 5

Manitoba Agriculture, Food and Rural Development

Seeding Rate Price CostCrop per Acre per Unit per AcreAlfalfa Hay

Alfalfa hay 10 lb $4.25 /bu $42.50Alfalfa-Grass Hay

Alfalfa-grass hay 10 lb $3.60 /lb $36.00Oat greenfeed (nurse crop) 1.25 bu $7.25 /bu $9.06

Bulk Price Actual Nutrient Nitrogen SulphurFertilizer Type $/tonne $/lb Usage UsageNitrogen: (urea) 46-0-0 $536 $0.529 100% -Nitrogen: (NH3) 82-0-0 $820 $0.454 0% -Nitrogen: (liquid) 28-0-0 $344 $0.557 0% -Phosphorus: 11-52-0 $779 $0.568 - -Potash: 0-0-60 $507 $0.383 - -Sulphur: 20.5-0-0-24 $449 $0.397 - 100%MES S15: 13-33-0-15 $776 $0.640 - 0%

TotalCrop lbs $/acre lbs $/acre lbs $/acre lbs $/acre $/acreAlfalfa Hay

Alfalfa hay 0 $0.00 45 $25.55 60 $23.00 15 $5.96 $54.50Alfalfa-Grass Hay

Alfalfa-grass hay 0 $0.00 30 $17.03 30 $11.50 0 $0.00 $28.53Oat greenfeed (nurse crop) 50 $26.43 50 $28.39 30 $11.50 15 $5.96 $72.27

1. Users are reminded to adjust silage yields when making changes to fertilizer rates.

Weed Insect Forage TotalControl Control Removal Cost

Crop $/acre $/acre $/acre $/acreAlfalfa Hay

Alfalfa hay $0.00 $0.00 $0.00Alfalfa establishment $15.00 $0.00 $10.00 $25.00

Alfalfa-Grass HayAlfalfa-grass hay $0.00 $0.00 $0.00Oat greenfeed (nurse crop) $15.00 $0.00 $10.00 $25.00

The fertilizer recommendation will vary depending on the soil type, climate and crop rotation. MAFRD recommends that soil test sampling and analysis be conducted each year to produce a better baseline for fertility. It costs $0.50 to $1.50/acre for custom sampling and analysis.

Chemicals

Seed & Treatment

Fertilizer 1

Amount of Actual Pounds of Elements Applied Per AcreNitrogen Phosphorus Potash Sulphur

Guidelines: Hay Production Costs 6

Manitoba Agriculture, Food and Rural Development

Interest Rate on Operating 5.50%Hay machinery repair 3.50% (% of total investment)

Land Taxes ($/acre) $7.00

Fuel Cost ($/litre) $0.85

Bale Weight (lbs.) 1,500

Labour Cost per Hour $20.00

Establishment Production Establishment ProductionField Fuel Cost ($/acre) $13.56 $8.59 $11.09 $5.98

Crop Insurance 1 ($/acre) $5.80 $11.06 $5.80 $9.17

Other Costs ($/acre) $5.00 $5.00 $5.00 $5.00

Rental and Custom WorkSeeding ($/ace) $0.00 - $0.00 -Application ($/acre) $0.00 $0.00 $0.00 $0.00Mower/Conditioner ($/acre) $0.00 $0.00 $0.00 $0.00Baling ($/bale) $0.00 $0.00 $0.00 $0.00Bale Moving ($/bale) $3.00 $3.00 $3.00 $3.00General ($/acre) $0.00 $0.00 $0.00 $0.00

Total ($/acre) $8.00 $12.00 $7.20 $9.76

Labour Hours per Acre # Hired # of Acres Hours Hours per acre 1.5 1.2 1.5 1.2 Staff Months Farmed Per Acre

Total ($/acre) $30.00 $24.00 $30.00 $24.00 2 2 420 1.520 0 420 0.000 0 420 0.000 0 420 0.00

Total 1.5

Trucks

Crop L/acre 1.29 1.85 0.75 2.42 0.42 0.26 1.48 1.32 0.42 0.5Alfalfa Hay

Alfalfa hay 10.10 0 0 0 0 0 3 3 3 1 0.5Alfalfa establishment 15.95 1 2 2 1 1 2 2 2 0 0.5

Alfalfa-Grass HayAlfalfa-grass hay 7.04 0 0 0 0 0 2 2 2 1 0.5Oat greenfeed (nurse crop) 13.05 1 2 2 1 1 0 1 1 1 0.5

Operating Costs

Alfalfa Hay Alfalfa Grass Hay

Field Fuel UsageNumber of Field Operations

cultivatetandem

disk harrow air drill

1Crop insurance: (2015 rates) Establishment Insurance for $80/ac coverage. Annual Insurance for 80% Select Hay coverage in MASC (FA 6) with LTAY alfafa <= 4 years, yield 1.907 tons/acre and LTAY alfalfa grass <= 4 years, yield 1.529 tons/acre.

hay rake hay bineround baler

spin spreader

3/4 ton pickup

SP sprayer

Guidelines: Hay Production Costs 7

Manitoba Agriculture, Food and Rural Development

Land value ($/acre) $1,500 Land cost ($/acre) $37.50Total Hay acres 600 Machinery Investment ($/acre) $280.83Depreciation Rate 10.0%Investment Rate 2.50% Machinery Depreciation cost ($/acre) $28.08

Machinery Investment cost ($/acre) $7.02Hay Storage ($/Acre) $1.50 Machinery Lease cost ($/acre) $2.40

Total ($/acre) $37.50

Market Forage Forage Market Forage ForagePower & Misc Equipment Value Usage % Allocation Harvest Equipment Value Usage % Allocation

MFD Tractor 100HP $100,000 50% $50,000 Mower/Conditioner $35,000 100% $35,0002WD Tractor 60HP $40,000 50% $20,000 Hay Rake $15,000 100% $15,000

$0 0% $0 Baler $35,000 100% $35,000$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0

Total $70,000 Total $85,000

Market Forage Forage Market Forage ForageSeeding, Tillage, Spraying Value Usage % Allocation Trucks & Trailers Value Usage % Allocation

Cultivator $10,000 20% $2,000 enter equipment here $0 0% $0Harrow 50ft $10,000 20% $2,000 $0 0% $0Air tank $10,000 20% $2,000 $0 0% $0Air drill 40ft $30,000 20% $6,000 $0 0% $0PT sprayer $7,500 20% $1,500 $0 0% $0

$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0

Total $67,500 $13,500 Total $0

Owned Equipment TOTAL $168,500 $280.83 per acre

Annual Forage Forage Annual Forage ForagePower & Misc Equipment Lease Usage % Allocation Harvest Equipment Lease Usage % Allocation

enter equipment here $0 0% $0 enter equipment here $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0

Total $0 Total $0

Annual Forage Forage Annual Forage ForageSeeding, Tillage, Spraying Lease Usage % Allocation Trucks & Trailers Lease Usage % Allocation

enter equipment here $0 0% $0 1/2 ton pickup $9,600 15% $1,440$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0$0 0% $0 $0 0% $0

Total $0 $0 Total $1,440

Leased Equipment TOTAL $1,440 $2.40 per acre* Leased equipment costs are listed under Operating Costs on the Summary Page.

Fixed Costs

Owned Equipment Inventory and Current Values

Leased Equipment Inventory

Guidelines: Hay Production Costs 8

Manitoba Agriculture, Food and Rural Development

Fuel Costs:Includes fuel used for field work, and trucking in inputs.

Machinery Operating Costs:Includes costs for maintenance, repairs, licenses and insurance.

Crop Insurance: (2015 rates)

Other Costs:

Land Taxes:

Interest On Operating:Interest charges on operating costs are calculated at 5.5% for six months.

Land Investment Cost:

Depreciation:Assumed 10% on machinery, no salvage value.

Investment Cost:Assumed 2.5% opportunity cost on machinery.

Estimated Farmgate Values:Forage prices are based on estimated prices for fall/winter 2014/15.

Storage Cost:Forage storage costs are estimated at $1.50 per acre.

Profitability & Breakeven Analysis:Gross Revenue = Price per unit x Yield per acre (eg. alfalfa: $120.00/ton x 3 ton/ac = $360.00/ac)

Net Profit = Gross Revenue - Total Cost (eg. alfalfa: $360.00 gross revenue - $236.68 total cost = $123.32 per acre)

Operating Expense Ratio = (Operating Cost / Gross Revenue) x 100 (eg. alfalfa: $138.58 operating expense / $360.00 gross revenue = 38.5%)

Breakeven Price = Cost / Target Yield (eg. alfalfa cost $236.68 / 3 ton = $78.89 per ton)

Breakeven Yield = Cost / Price per Unit (eg. alfalfa cost $236.68 / $120.00 ton = 1.97 ton)

Created and maintained by January, 2016For more information, contact your local Roy Arnott Benjamin Hamm Ray BittnerFarm Management Specialist Farm Management Specialist Farm Production Extension

Land values are based on appoximate average land values in Manitoba. Budget assumed 2.5% return on land investment

Includes overhead expenses: hydro, telephone, accounting, buildings, supplies and insurance, etc.

The average for the province was based on land tax assessment and mill rates of a sample of municipalities growing crops less provincial tax rebate.

Other Assumptions

Forage Area (FA) #6 - Establishment Insurance at $80/ac coverage and annual Select Hay Insurance at 80% coverage.

MAFRD Farm Management MAFRD GO Office or:

ESR-016086 January 2014

For more information• Contact your local Manitoba Agriculture,

Food and Rural Development (MAFRD) Growing Opportunities (GO) Office.

• Visit us at manitoba.ca/agriculture.