Scot Benson is an optimist by nature. But he's a pessimist when deciding whether to buy a new piece of haymaking equipment.
"I feel it's very important to know your costs of production when considering new equipment," says this Earlville, IL, hay grower. "Before we buy new equipment, we do a budget projection that includes the worst-case scenario on yields and prices. Then if we still decide to buy, we ordinarily don't have any unpleasant surprises a few years later."
However, Benson may be in the minority when it comes to making a realistic cost-of-production projection prior to purchasing.
"I suspect that, of the crop enterprises on most farms, the producer has a better handle on breakeven costs for corn and soybeans than for hay," says Iowa State University forage agronomist Steve Barnhart. "Unfortunately, many hay production costs aren't counted. Consequently, the profitability of the enterprise gets inflated."
Benson, who raises corn, soybeans and alfalfa and finishes 800-1,000 head of cattle annually, tries to keep tabs on all costs.
"I carry a notebook and I log every job, including cutting, raking and baling hay," he says.
Benson has 100 acres of alfalfa and sells about 85% of his production. He also custom harvests 300 acres. He got into the cash hay business in 1988 when he needed to generate extra income to pay for a baler he bought to handle hay for his own cattle.
"I did a conservative projected budget before buying that baler and have done the same for every piece of haying equipment we have purchased since then," he says.
He uses a spreadsheet when making a buying decision, including his most recent purchase of a baler and rake.
Although Benson bases his cash hay prices and custom rates on his actual costs, the custom rates correspond fairly closely to the rates posted by the University of Illinois.
When a farmer comes in for a hay equipment loan, banker Paul Lawinger wants to make certain the applicant has enough hay volume to justify the purchase.
"It's not difficult to get credit for haying equipment," points out Lawinger, of Amcore Bank, Mt. Horeb, WI. "But such a purchase may not always be in the farmer's best long-term financial interests.
"He should be able to show that his total costs - including interest, depreciation, labor, fuel and insurance - are at least within shouting distance of what it would cost to hire the haying done. There is also the tractor rental cost, whether he actually rents a tractor or uses his own."
Lawinger says most farmers in his area can get two to three bids for custom haymaking.
"Farmers who have never hired a custom operator to cut and bale their hay often are concerned about the custom operator's timeliness," says Lawinger. "But a custom operator won't be in business long if he's not timely."
Hay growers who want to do cost-of-production projections can get help from Agmach$. It's a free software package from Oklahoma State University that provides information about the cost of owning and operating farm machinery. And it's geared to the user's particular situation.
Hay machinery covered in Agmach$ includes all types of cutting, raking and baling equipment.
You can download the software at dasnr.okstate.edu/agmach.