“The month of July is usually the most difficult time of year to determine hay prices,” says Ted Nibourg, farm business management specialist, Ag-Info Centre, Stettler. “Yields and quality are uncertain and demand is an unknown factor. July of 2014 is no exception.”
Last summer’s hay production was variable in quality, says Nibourg. “Two long hard winters back to back reduced much of the hay carry-over in the province. There were numerous reports of strong hay prices earlier this spring. These were typically paid by producers who had run out of feed and pastures were not growing. As well, some cattle were turned out to pasture earlier than normal. This may increase the demand as these producers could find themselves starting to feed earlier than anticipated.”
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All the production and price variables make it difficult to determine the value of standing hay during the haying season.
“Hay prices usually do not settle until about the end of October,” explains Nibourg. “At that time, everyone has a good idea of forage production which includes hay, greenfeed and silage as well as the amount of salvaged cereal crops that have gone into the mix. By late October, one can reasonably estimate the type of winter to expect which has a bearing on feed disappearance. Also, the fall calf market will give a good indication of whether calves will be backgrounded or sent directly to feedlots. Backgrounding usually increases the demand for hay.”
Estimating value
The value of a standing hay crop is based on the estimated market value of hay in the bale less cutting and baling costs plus an allowance for weather risk.
“The weather risk allowance would be at least 10 per cent (e.g. for grass hay) and as high as 30 per cent (e.g. for alfalfa) of the expected market value,” says Nibourg. “Without it, a badly weather-damaged crop could cost the producer the same amount as if they had purchased ready-made, top-quality bales from someone else.”
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Alberta Agriculture and Rural Development’s Custom Rates Survey Summary outlines the current rates being charged for most custom haying operations. Producers can also use the online Machinery Cost Calculator on Ropin’ the Web to determine what these costs will be for their operation.
“Many Alberta producers include the asking prices in their hay for sale listings on our Alberta Hay and Pasture Directory,” says Nibourg. “As well, Agriculture Financial Services Corporation (AFSC) publishes historical forage price data for all regions of the province.”
A typical scenario for two parties entering into a standing hay agreement is to arrive at a best guess for both price and yield and from that, estimate the value of the standing hay crop. 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.
“A crop share is another simple but effective rental arrangement for a forage crop,” says Nibourg. “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. With this year’s higher-valued hay crop compared to the past few years the 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. Again, the final settlement is determined in late October when prices are more firmly established.”
