It’s not easy to put a value on hay this early in the season, but producers considering a crop share should come up with an estimate, says a provincial farm business management specialist.
Hay prices usually do not settle until about the end of October when there are firmer estimates of forage production, the amount of salvaged cereal crops, and whether the fall calf market will favour backgrounding calves (which increases demand for hay) or sending them directly to feedlots, said Ted Nibourg.
But an early-season estimate can be done now to work out a hay share agreement, he said.
“A typical scenario for two parties entering into a standing hay or hay share arrangement is to arrive at a best guess for both price and yield at haying time,” he said. “Once they agree on price and production, they can estimate the value of the standing hay crop and then allocate hay shares. The tenant would then pay one-half of that value at haying time and then make a final payment, either more or less, in the fall when hay prices have firmed up.”
The value of a standing hay crop is based on the estimated market value of bales less cutting, baling, stacking, and labour costs, plus an allowance for weather risk. Agriculture Financial Services Corporation publishes historical forage price data for all regions of the province.
“A five-year average fourth-quarter price for central Alberta mixed hay gives us a value of approximately $120 per ton or six cents per pound,” said Nibourg. “Assuming a yield of 1.8 tons, or three bales, per acre weighing 1,200 pounds, we arrive at a value of $72 per bale. Using average custom rates of $22.75 per acre for cutting, $13.50 per bale for baling, $2.75 per bale for stacking, and adding $8 per acre for labour, it gives us a cost per bale of $26.50, leaving a value of $45.50 per bale.
“The $45.50 per bale is the value of the standing crop. On a share basis, the standing hay value is 63 per cent of the total price of the bale and represents the share that accrues to the landowner.”
At two bales per acre, the cost per bale increases to $31.63. Alternatively if production remains at three bales per acre but price drops to $80 per ton, the cost would remain at $26.50 per bale, he said.
Weather risk allowance should be at least 10 per cent of expected market value for grass hay and as high as 30 per cent for alfalfa.
A crop share is a simple but effective rental arrangement for a forage crop. The tenant harvests the crop and gives the landlord their share of the crop in bales. The landlord then has a product that is ready for sale or for their own use. A landlord’s crop share for a hayfield can vary from 40 to 60 per cent.
“It is important that the estimated market value, yield potential, and harvest costs for the crop are considered to ensure that the arrangement is fair for both parties,” said Nibourg.