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Buy or Bale Hay?

When it comes to hay for your livestock, put a pencil to the decision to buy baling equipment or to purchase bales.

By Lorie Woodward Cantu

For many producers, feeding hay signals winter as surely as a cold norther.

"In many parts of the state, feeding hay is a common beef production practice," says Carl Homeyer, state agriculture economist for the USDA Natural Resources Conservation Service (NRCS) in Temple. "But because growing and harvesting hay is an enterprise filled with variables, it often prompts producers to ask, ‘Am I better off growing hay or buying it?"

Unfortunately, there is no one-size-fits-all answer, he says. Each scenario has pros and cons.

It can be argued that the biggest benefit for producers who grow and harvest their own hay is control, he says. The grower determines when fertilizer is applied, when the hay is cut and how quickly it is baled and moved from the field.

"Generally, when your hay is ready, all your neighbors' hay is ready, too," Homeyer says. "If you are relying on a custom baler and you're not first in line for the cutting, your hay could stand in the field past its prime, losing nutrition and palatability. Owning your own equipment gives you the ultimate amount of control."

Of course, equipment ownership comes with a cost. First is the actual expense of the equipment, which, if a producer has to borrow money, will also include interest. If they are paying cash for the equipment, producers must consider whether that money would make a bigger impact on their operation being spent somewhere else, he says.

For planning purposes, a new suite of hay equipment, including a tractor, cutter, rake and baler, will cost approximately $79,500. The breakdown is:
Tractor (90hp) … $35,000
Cutter … 10,000
Rake … 7,500
Baler … 27,000
Total … $79,500

With a 20 percent down payment and interest at 6 percent for 5 years, the payment on these pieces would be $15,098.61 per year. At $30/bale, it would take 500 bales to cover the note payment, not including operating expenses, he says.

If producers' haying operations are not large enough to cover the equipment's cost, they may consider custom baling for others, but they must take into account the opportunity cost of that decision, he says.

"Again, when your hay is ready, so is everybody else's," he says. "During peak hay seasons, your other enterprises may have to take a backseat. If that's the case, what will that ‘neglect' cost you in the short term and in the long term?"

Another way to control costs is to purchase used equipment, Homeyer says. The same suite of equipment described, but used and not new, will cost approximately $56,000.

Because hay equipment has many intricate parts that have to work in concert, breakdowns are common. It is helpful to either be a good mechanic or have a good mechanic and an ample repair budget, he says. Also, it's important for producers to figure the "lost" time into their calculations.

Many people also overlook the fuel and labor costs associated with moving the hay off the field, he says.

Purchase considerations

Obviously, purchasing hay removes many of upfront costs and the logistical headaches, particularly if producers establish a relationship with a trusted source, he says.

"If a cattle producer can contract with someone who can consistently provide an adequate supply of good quality hay, that may be a very cost-effective option," Homeyer says. "It removes the production risks and the production headaches."

Anyone who considers purchasing hay should also plan to have it analyzed for nutrients, particularly protein, Homeyer says. The Texas A&M AgriLife Extension Service Soil, Water and Forage Testing Laboratory in College Station provides testing services for protein alone for $5/sample. The lab can test for additional nutrients for an additional charge.

"Protein is the crucial nutrient for cattle, especially in the winter," Homeyer says. "The protein content in your hay is a crucial component of your feeding program. In fact, it can dictate whether you have to supplement."

For instance, good quality coastal bermudagrass hay is generally 10 to 14 percent protein. In comparison, wheat straw is very low in protein, making it more useful as filler than feedstuff, and early bloom alfalfa is 17 to 22 percent protein. A lactating beef cow requires 8 to 12 percent crude protein of dry matter intake while nursing a calf up to 6 months of age.

"Even though alfalfa has a higher cost per pound than other types of hay, it may end up being less expensive in the long run because it is more nutritionally complete and alleviates the need for range cubes or other protein sources," Homeyer says. If a producer chooses to feed alfalfa, it may require an investment in troughs to catch the leaves and minimize waste, he says.

Years of watching cattle eat hay led Homeyer to make an observation about the comparative value of high-quality hay.

"Cattle tend to clean up good hay," he says. "They don't butt it. They don't stomp it. They don't mess around with it. They just eat it." In other words, spending a little more for high quality hay may also minimize expense associated with waste, he says.

Another potential benefit of buying hay is that the acreage dedicated to hay production can be used to provide additional grazing, increasing the number of animal units in the operation, or can be held out to use as reserve grazing in a drought, he says.

Instead of producing hay, some producers prefer to reduce their stocking rates to "store hay on the stalk." In climates where the grass cures instead of deteriorating this is a viable option because it helps defray the variable costs of hay production, reduces possible erosion and increases water percolation and storage capacity of the soil in the pasture.

"In the final analysis, the only way for producers to determine whether it's better to grow hay or buy it is to put a pencil to it and then do what makes sense for them and their individual operations," Homeyer says.

Editor's Note: This is the ninth in a 12-part series focusing on using partial budgets to answer questions in a technique commonly known as "penciling it out." Because Texas and Oklahoma are so diverse and each ranch is unique, the series was not designed to provide a one-size-fits-all answer. Instead it was created to help producers become familiar with a handy tool that can be used to strengthen the bottom line. The series has been developed in collaboration with Carl Homeyer, state ag economist for the USDA Natural Resources Conservation Service (NRCS), Temple. Homeyer earned his bachelor's degree in Range Science and his master's degree in land economics and real estate from Texas A&M University. Before joining the NRCS in 2009, Homeyer operated his family's Burleson County ranch, which also includes broiler houses, while owning and running several small businesses.

"Buy or Bale Hay?" is from the September 2013 issue of The Cattleman magazine.