Revisiting the Economics of Hay

My August 2009 Progressive Farmer magazine has arrived (thanks Mary!). There is an article, Hay Outlook 2009, here, written by Del Deterling – following up on a continuing thread on the economics of hay, that’s the source of today’s post.

The article quotes some Louisiana farmers reporting hay sales of $90 to $150 per ton, depending on rolls, large bales, or small bales, prices which are generally off a bit from last year. I’ve been looking to match this kind of data against authoritative information about input prices, and after seeing this article, was able to locate information at http://pubs.ext.vt.edu – the Virginia Cooperative Extension, in a report by Gordon Grover and Peter Callan. Their article calculates an input price that ranges from $119 to $132 per ton, and up to $152 if the land needs additional nitrogen.

Right on the face of it, something doesn’t compute here: the ranges for costs and price do not overlap in a way to ensure that a hay farmer can consistently make a living. Since it doesn’t make sense that you would transport hay long distances due to costs (high mass, low value), I dug in a bit further and found a report from the H-burg hay market that calculated around $270 for large square bales. Assuming that is alfalfa, and using $132 per ton as the cost basis, now there is a margin left.

Next, I read a 2004 yield report that said production averages 4 tons per acre, the VCE data is based on 5 tons per acre; so, if a farmer can manage a 5 ton yield, he or she will generate about $500 an acre in margins. Without going into the complexity of first cut, second cut, etc. this round, if all the farmer does is grow hay, that operation needs to have 800+ acres in cultivation just to get to a median Page County income level of around $40K.

Driving though Page County, I have been wondering why I often see five and six acre frontage lots being divided off of the larger holdings, ostensibly for residential development. Unless I am missing something, this analysis begins to show how development has impacted land prices in the state, driving out agriculture.

There are probably better margins in other crops, or perhaps livestock farming, so I’ll do some more research on that topic. I also will see what I can find on recent land prices – it’s my hunch that you cannot buy land and use it for agriculture anymore based on these economics. But for now, there isn’t enough information to draw that conclusion.

Comments and insights are welcome, of course.