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Business Basics: Skyrocketing fuel and fertilizer prices can be offset with managing for more forage per acre.

March 28, 2022

4 Min Read
tractor and hay baler making bales of hay in field
MAKING HAY: The high cost of diesel fuel will add to the production cost of forage this year. Farmers need to adjust their budget accordingly. DEBOVE SOPHIE/Getty Images

The price of everything seems out of control. Farmers who produce hay to feed their livestock will pay more when they buy fuel and fertilizer this spring.

Here’s how you can assess the effect of rising fuel prices on production costs for next winter’s feed supply:

Track fuel prices. On a biweekly basis, the USDA Agricultural Marketing Service reports costs of hay production inputs including fuel and fertilizer. If purchasing less than 1,000 gallons of diesel, the Illinois farm price on March 10 averaged $4.40 per gallon. Just a year earlier, the price averaged $2.53. That’s an increase of $1.87 per gallon, or 74%. Wow, that hurts! Plus, fuel prices have now broken the previous high — $3.76 per gallon — set in 2011.

Annual Average U.S. On-Highway Diesel Fuel Prices ($/gallon) chart

Actually, diesel fuel prices have been trending upward nationally since 2016, as seen in fever chart at left, which can be found at USDA's Agricultural Marketing Service online.

Update planning budgets. When we put together the 2022 University of Missouri Extension planning budgets last fall, we assumed farm diesel prices would average $2.91 per gallon, and that mowing, raking and baling an acre of fescue-clover hay would take 2.26 gallons of fuel. That includes a half gallon used by the pickup truck you need for checking the field and moving equipment.

If you update the diesel price used in the production budget to today’s $4.40 per gallon, it increases hay harvesting costs by $3.37 per acre. Producing 3 tons of hay per acre — or five 1,200-pound bales — means the 74% fuel price increase only raises hay harvesting costs by 67 cents per bale.

Farmers can also customize this budget to fit their own operations by using the Missouri Forage Budget Generator. Download the Excel spreadsheet tool to create an electronic copy of your cost and return estimates for forages.

Machinery assumptions used in fescue-clover hay production (per acre basis) table

Put fuel costs into context. Considering that machinery-related hay harvesting costs totaled $46.36 per acre for mowing, raking and baling, the extra $3.37 paid per acre for fuel has a relatively modest effect on total hay harvesting costs. 

Machinery ownership, not inputs such as fuel used in those machines, is where you rack up costs. According to our enterprise budgets, nearly half of forage harvesting costs is owning those pretty green, red, blue, or whatever color you prefer, pieces of hay equipment and the power unit that pulls them across the field. We remember the check we write each week for fuel but easily forget the much larger check we wrote last spring for a new baler.

If you are like most farmers, then you never actually charge yourself for labor. So your actual out-of-pocket operating expenses would be lower than what our budget estimates. It also means machinery ownership costs would be an even larger share of the total pie.

Because of high ownership costs, I suggest a simple rule of thumb to control hay harvesting expenses. That is, you must harvest nearly 200 acres to get your costs below the average custom rate published by MU Extension. 

Produce more forage. The easiest way to lower your harvesting costs is by increasing forage yield per acre. Many years ago, I asked a custom harvester to bale my 85 acres. He said he needed to take care of a larger customer first. When he finished baling 300 bales on the neighbor’s 125 acres, he baled 398 bales on my 85 acres. He charged us both the same price per bale. Which property was more profitable? That’s right, my 85 acres.

We calculate harvesting costs per bale because we can easily count bales. But the costs of dragging the same equipment over an acre really don’t change that much as yield increases. With high-yielding forage, you’ll need a little more fuel as you gear down and another 0.1 hour of labor per acre. Net wrap use also goes up. Those upticks in costs are minor, however, compared with machinery ownership expenses.

I have long argued we need to quit using balers to bushhog hay fields. Instead of dragging a baler over hundreds of acres getting only 2 bales per acre, plan how you can intensively manage fewer acres and optimize hay production on the smaller footprint. 

I know that sounds challenging because this spring producers face a double whammy as not only fuel prices but also fertilizer prices have skyrocketed. To manage fertilizer costs, maybe fertilize half as many acres with a normal rate rather than cutting the rate in half across all acres. This approach will improve your machinery economics. 

Whatever strategy you use, remember the price of fuel hurts when writing the check, but it doesn’t impact your bottom line as much as your machinery’s pretty paint does.

Tucker is a University of Missouri Extension ag business specialist and succession planner. He can be reached at [email protected] or 417-326-4916.

 

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