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Do homework before selling extra alfalfa

Agrivision: Calculate the value of standing alfalfa and discuss this price range with potential buyers before committing to harvesting it.

May 21, 2024

6 Min Read
man driving tractor and rake through alfalfa windrows
CALCULATING ALFALFA VALUE: According to University of Wisconsin research, the most frequently observed alfalfa yield has been 4 to 4.49 tons of dry matter per acre per year. FRAN O’LEARY

Thanks to no winterkill, we have an abundance of alfalfa — more than we need for our own herd of 180 cows and 80 heifers. Should we sell 50 acres of second-crop and third-crop alfalfa as standing hay in the field to our neighbor, or are we better off harvesting it as baleage and selling it to him by the bale? We have the equipment and labor to handle making the crop for him. I’m just wondering if it’s smarter to sell the crop standing or harvested? Please advise.

Tom Kestell: I’m glad your alfalfa came through the winter in great shape. My first question is: Have you talked to your neighbor about how he would like to handle the sale of the alfalfa? Find out what your neighbor would prefer. What does he want to offer for the standing hay, or does he want the hay delivered to him? Maybe he would rather chop it at harvest or make dry hay. Also discuss who takes the loss in case of rain damage.

Work out a fair deal in advance on a per-ton basis, because it is always possible to have a poor crop due to either too much rain or too little rain. Your neighbor will be your neighbor for a long time, so try and meet his wishes fairly so both of you are satisfied.

As a reference, I have sold hay standing for several years, and the formula I use is $1 per point of relative feed value. We then shrink the moisture to 15% and sell on a per-ton basis. They harvest it. I hope this helps and good luck.

Sam Miller: Fortunately, you have excess inventory and choices as to keeping it for future use or selling to your neighbor as standing hay or added-value baleage. First, run a partial budget analysis comparing the revenues and expenses of selling it as standing alfalfa vs. harvesting the crop and selling it as baleage. Keep shrink in mind when selling as baleage.

Second, ask your neighbor what his preference is: standing hay or baleage? Reach out to your Extension ag agent or farm technical college instructor for prices for standing alfalfa and baleage and costs for harvesting. There is less risk and expense selling it as standing hay, but you may get more value from baleage. Good luck with your analysis and decision.

Katie Wantoch: Calculate the value of your standing alfalfa and discuss this price range with your neighbor before committing to harvesting it. Extension educators are often asked, “What is standing hay worth?” University of Wisconsin Extension’s website has several articles to assist with this question.

One of many challenges farmers face in determining the value for standing hay is the lack of daily price information, like what is available for other commodity grain crops.

If you decide to take on harvesting the alfalfa, your price range should reflect weather and yield risk. Another challenge is accounting for the difference in quality and yield. Yield can be estimated before harvest from historic records or from stand evaluations that determine the full-season yield potential.

According to UW research, the most frequently observed yield has been 4 to 4.49 tons of dry matter per acre per year. You’ll want to determine the average yield distribution per cutting. For example, in a three-cut system, 46% is from the first crop, 28% is from the second crop, and 26% is from the third crop. Distribution varies in a four- or five-cut system.

Lastly the issue of risk must be considered by the buyer. The further ahead of harvest that you are negotiating this agreement, the greater risk the buyer assumes, as he won’t know the quality until close to harvest. Pur your agreement in writing and sign it, so you and your neighbor have the same understanding.

Is it time to retire?

I sold my cows in 2021. I decided I would be better off crop farming than milking. Now crop prices are in the dumper. I’m 68 years old. I have a $200,000 mortgage on my land. I’m farming the land this year, but I’m wondering if I would be better off selling my equipment this fall or next spring and renting my 340-acre farm to the neighbor next year or continuing to crop farm. Please advise.

Tom Kestell: Part of the answer to these questions is: How much do you enjoy cropping the land? What kind of shape is your equipment in? Is it in good enough shape to go one more year without major repairs?

I think there is very little upside to operating the land on your own again this year. I would have a rental agreement written up and signed with a multiple-year contract in place so you can enjoy your retirement without worries. In the contract, include maintaining fertility of the land, rotating the crops and keeping conservation practices in place.

Seek the advice of a financial planner to avoid tax liabilities as much as possible at the end of your active career. That means possibly splitting the sale of any remaining crops and the equipment in different tax years. Without new crop expenses and machinery purchases and repairs, this should eliminate your mortgage.

Plan and take a nice vacation, because you have earned it! Good luck with your decision. If you miss farming, you can always offer to help your renter or other neighbors, because they are likely always looking for extra help.

Sam Miller: Renting your land provides a return with less risk than does farming, but also caps the upside should crop prices rally. Visit a local equipment dealer or auctioneer to get an idea about the value of your equipment; then visit your tax adviser about the expected capital gain or ordinary income tax expectations for selling your equipment. Be certain to discuss timing of selling the equipment considering other income and expenses you incur.

After gathering this information, analyze how much debt, if any, remains and the expected rental income, social security or retirement plan income vs. your living expense.

You will also need to negotiate a rental arrangement for the land. Be certain to put this in writing, including the length of time, fertility needs and soil testing frequency. If the land rental option provides an adequate return and you are comfortable with this decision, then move in that direction.

Katie Wantoch: Consider what your future looks like. Where do you see yourself in two or five years? What are you doing? If your answers include staying on the farm and maintaining your current lifestyle, then you might want to consider how your crop operation can be more profitable. You may not be profitable every year. In some years, events are beyond your control. Look for opportunities to be more competitive, to be more productive, to be more cost-efficient and to do a better job of marketing your crop production. Generally, farms that are more successful doing these things are more profitable over many years.

If your answers include spending more time away from the farm or traveling, then you might consider renting your land. Meet with your tax professional so they can provide guidance on the sale of your farm equipment. If you have already depreciated your machinery, you might owe a large capital gains tax bill upon the sale. Best of luck with your decisions.

Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, University of Wisconsin Extension statewide farm management outreach specialist/professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].

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