Pricing standing forage
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EmailHow to determine forage prices - finding a starting point for short-term sales.
Sales of standing forage require an estimate of market price and a method of determining yield--whether forage is sold by the bale, ton, or acre--as a starting point for negotiations between the buyer and seller. This article describes a method to help determine a starting point for short-term sales; it is not intended to be used for long-term contracts.
What is a reasonable hay or haylage price?
Forage prices reflect inventories, demand, acreage, current season yield potential, and yield risk. These factors reflect differentials for attributes or quality. Current hay prices are much less readily available when compared to prices for corn, soybeans, and wheat.
To gain an understanding of hay values, look at a number of sources:
- USDA Agricultural Marketing Services Market Reports
- USDA “Agricultural Prices” Report – Administered by Cornell University
- National Agricultural Statistics Service – Monthly state level prices available
- Hay Market Demand and Price Report for the Upper Midwest
The haylage price is usually estimated by adjusting the hay price for the difference in moisture content between hay and haylage as well as differences in handling and storage costs that may exist between time of purchase and use.
The seller of standing forage’s perspective
The farm with the standing forage looks at the cost savings that would be incurred if the forage were sold as a standing crop versus sold as hay. In this perspective, the costs of harvesting and storage would not be incurred. Also, depending upon the structure of the contract in terms of risk sharing, the farm may avoid any yield and quality risk with the haylage. Thus, on a per acre basis they are looking at gross revenue less costs not incurred with some adjustment for risk.
The buyer of standing forage’s perspective
The buyer of standing forage usually is looking at the value of time, place, form and quality of the forage. They typically have the capacity to harvest, haul and store the forage. Buying the standing forage in the field may provide more quality control, assurance of access, form desired, and/or locational advantages over direct purchase. They have a similar perspective to the seller; namely, what costs am I saving by purchasing standing forage versus the “finished” product. Thus, they are also looking at the price of the finished product as a reference point and asking what production costs they save (such as establishment, fertilizer, pest control, etc.) by purchasing the crop standing in the field and additional risk they may be incurring.
How do I estimate yield?
Since both the buyer and the seller use price per ton in the market as a reference point, determining yield is critical in pricing standing forage. Historic records for the field provide one starting point if they are available. Stand evaluations provide an alternative for estimating yield potential but need to consider the age of the stand, fertilizer program and weather. Sale based on actual yield can be used and impacts the risk borne by both buyer and seller. Actual yield can be determined by weighing loads or estimated by weighing a few bales and counting total bales harvested.
Forage agronomists generally recommend the actual weights coming off the field be used when possible. Estimating standing yield is an inexact science and can have significant impacts to the risk for both the buyer and seller. If the sale is based on estimated preharvest yield, there is considerable risk of a big harvest loss between cutting and baling. For example, if the haylage is rained on or mishandled causing leaf shatter, these factors can affect yield.
Table 1 can be used to estimate relative yield for individual cuttings.
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Table 1. Approximate yield distribution for 3- and 4-cutting alfalfa systems¹ |
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Cutting |
% of Total Yield |
Cutting |
% of Total Yield |
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1 |
40 |
1 |
35 |
|
2 |
30 |
2 |
25 |
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3 |
30 |
3 |
20 |
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4 |
20 |
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¹Source: Dr. Dan Undersander, Department of Agronomy at University of Wisconsin – Madison.
For example, if yield in a three cutting system is expected to be 4.5 tons/acre, first cutting yield would be 4.5 tons × 0.40 = 1.8 tons/acre.
If chopped for haylage, the moisture content of the haylage would have to be determined to convert haylage yields to hay equivalent by the formula:
For example, if first crop haylage yield is 3.9 tons/acre of haylage at 40 percent dry matter, and dry hay is expected to be 87 percent dry matter, this haylage could be converted to hay equivalent as follows:
What are harvest costs of standing forage?
Table 2 provides an estimate of selected harvest costs for Michigan. If forage needs to be transported some distance, hauling costs should also be factored into harvesting costs.
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Table 2. Approximate harvesting costs for selected tasks² (labor $20.24/hr. for unskilled tasks.$29.99/hr. for skilled task) |
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Mower/conditioner |
$9.08/acre |
Hay Baler PTO Twine 12ft |
$16.75/acre |
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Raking |
$2.42/acre |
Large Rectangular Baler 3x3 |
$13.91/acre |
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Hay Merger |
$7.56/acre |
Hay Merger, self-propelled |
$6.44/acre |
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Round baling 5x6 |
$16.21/acre |
Round baling 5x6 (with wrap) |
$17.29/acre |
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²Source: MSU, “2022 Custom Machine Work Costs." A more complete list of tasks is available at https://www.canr.msu.edu/resources/custom-machine-work-costs
Steps in calculating the price of standing forage:
The following steps provide a starting point for negotiations from the seller’s perspective:
- Estimate the price/ton for the average quality hay that would be expected to be produced from the field (cutting).
- Estimate the yield/acre.
- Calculate the gross revenue: price × yield.
- Estimate costs not incurred if forage is sold standing in the field instead of as hay. Price/ acre = Gross revenue/acre – Cost/acre saved by selling as standing forage in field
- There may be an adjustment in this price for risk depending upon the terms of the contract. For example, if the field is priced on a per acre basis prior to harvest, the buyer is absorbing the yield and quality risk associated with weather.
The steps are similar for the purchaser. They are estimating the additional costs they incur if they purchase standing forage versus dry hay. Thus, their costs for standing forage shouldn’t exceed the purchase price in the field plus the additional costs. However, the buyer’s cost structure, pricing of hay package type, and the ability to better control quality, and pricing of risk may differ from the seller.
Example:
- First cutting with an expected yield of 1.8 ton hay / acre of dairy quality (weather cooperating).
- Hay @ $190/ton (average across potential quality reflecting harvest risk).
- Assume $8.00/ton hauling charge.
- Costs not incurred (mowing, conditioning, raking, merging, round baling with wrap, and hauling) are $72.76/acre or $72.76 / 1.8 = $40.42 / ton.
- Price / acre = 1.8 ton × $190/ton - $72.76 = $269.24/acre.
- Price / ton = $269.24 / 1.8 = $149.58 / ton.
- Further adjustments might be warranted for risk, partly depending upon whether potential variability in quality was reflected in price.
- The seller and buyer would make similar calculations reflecting their perspectives and information. This would provide a starting point for discussion and negotiation.
What is the quality of the standing forage?
The timeliness of cutting and the percentage of alfalfa versus weeds in the stand will impact forage quality. Keep in mind that taking a forage sample for quality testing could help with marketing as it provides an analysis of the actual content of the forage. A dense, clean stand of pure alfalfa would deserve a premium in a competitive forage market. Even an alfalfa field mixed with a high-quality grass should be of higher value than an older stand with weeds.
Consider if the hay from the previous example were 75% Alfalfa and 25% Grass:
Example:
- First cutting with an expected yield of 1.8 ton hay / acre
- Hay is 75% alfalfa (0.75 ton) and 25% grass (0.25 ton)
- Alfalfa Hay @ $190/ton and Grass Hay at $135/ton.
- Revenue would become 0.75 ton x $190/ton plus 0.25 ton x $135/ton = $176.25 /ton (or $317.25/acre).
The costs involved would remain the same:
- Assume 700 lb. round bales and $8.00/ton hauling charge.
- Costs not incurred (mowing, conditioning, raking, merging, round baling with wrap, and hauling) are $72.76/acre or $72.76 / 1.8 = $40.42 / ton.
Price calculation would then be:
- Price / acre = $317.25 - $72.76 = $244.49.
- Price / ton = $244.49 / 1.8 = $135.83.
Risk
Lower than expected yields or weather delays lowering quality can greatly reduce the net gain of purchasing standing forages. Producers need to adjust numbers in these examples to reflect current market conditions, yield and harvest timeliness. The value of risk is difficult to estimate but can be based on a typical value of the desired forage quality.
Contracts signed well before harvest and full season contracts should reflect a lower price due to the greater risk the buyer is assuming. In contrast, an agreement made close to harvest would be much closer to the current forage price because the buyer knows the status of the crop being purchased.
The Wisconsin Forage Team suggests a risk premium of 10% to 20% of gross revenue with the range dependent upon the timing of when the contract is established relative to information about yield and quality. A 10% risk factor, for our example, would be a reduction in the price of about $34.20/acre or $19.00/ton. Note: negotiation needs consistency whether the setting of marketable yield and average price already reflect the vulnerabilities of producing forages or whether an additional adjustment is needed.
Fine-Tuning the Price
The buyers of standing forages are often livestock producers who may be willing to spread manure on fields where the forages are harvested. The economic value of manure as a replacement fertilizer should be taken into consideration. Often, the purchaser’s price is adjusted for the reduction in the seller’s fertilizer expenses (i.e., based on nutrient removal).
Opportunities may also exist for the buyer to custom harvest the seller’s other crops, providing convenience and value to their operation. The value should be considered in determining a price of standing forage, particularly for farms with smaller equipment or absentee landlords.
Final consideration
A written agreement prior to the start of harvest is recommended and should include price, when payment is due, method of determining yield when selling by the ton, and other pertinent factors. A written contract clarifies the sale agreement for all parties and provides a record to eliminate differing memories of what was agreed to.
Editor’s note: Updated from an original article written by Roy Black. Many of the concepts and some of the language in this article are adapted from "How to Price Standing Forage" by Ted Bay, Rhonda Gildersleeve, Ken Barnett, and Dan Undersander, University of Wisconsin Crop Manager Fact Sheets, May 15, 2008.