Calculating Hay Share Agreements
Livestock producers commonly purchase standing perennial forage from second party landlords. It is in the best interests of both seller and buyer to get written documentation of agreements.
A written agreement not only protects individual interests, but usually leads to a better understanding of the terms and conditions by both parties. "Hay" will mean average quality legume/grass hay mixes for the beef cow industry. Hay for the dairy industry is considered a specialty crop.
Contributions Approach
- Calculate hay share using the inputs supplied by the landlord and the renter as the basis for calculating a share of the crop for each party.
- Determine the cost of cutting and baling hay by checking the Farm Machinery Custom and Rental Rate Guide for a general reference point.
Sample Contributions Worksheet
|
Landlord’s cost per cultivated acre |
Tenant’s cost per cultivated acre |
||
|
Land investment cost: $500 per acre X 5% Taxes per acre |
$25.00 $4.00 |
Machinery: Based on –Farm Machinery Custom and Rental Rate Guide and yield of 1.5 ton/acre |
|
|
Forage seeding costs amortized over a seven-year stand Annual fertilization Cost of exported nutrients |
$14.71 $0.00 $0.00 |
Baling costs –Large round bales Cutting costs –Pull type mower conditioner |
$27.14 $17.00 |
|
Landlord’s total costs per cultivated acre (A) |
$43.71 |
Tenant’s total costs per cultivated acre (B) |
$44.14 |
| Total cost to both parties: A+B = $87.85 |
|||
| Landlord’s share: | $43.71 $87.85 |
x 100 = 49.75% |
|
| Tenant's share: | $44.14 $87.85 |
x 100 = 50.25% |
|
Note: This example does not include values for additional landlord costs like annual fertilizer cost or the cost of nutrients exported from the land in the form of hay (for an estimate of the value of exported nutrient use the Saskatchewan Ministry of Agriculture Hay Share Calculator). Costs for cutting and baling can vary depending on the size of the equipment used.
Market Approach
Many landlords prefer to sell standing hay crops by pricing the hay on a cents/pound or dollars/bale basis. This type of an agreement effectively reduces landlords' marketing and quality risk. Bale size, moisture content and time of payment should be agreed upon and included in a written agreement. There is significant weather risk in producing good quality hay and this risk is usually factored into the bid price for standing hay.
Determine your local supply and price of hay. Sources include daily and weekly newspapers or online classified ad websites.
Using sample input data in the above example:
- If your local market for average quality baled hay equals $80.00 per ton or 4 cents per pound.
- Costs to cut and bale equals $44.14 per acre or $29.43 per ton or 1.5 cents per pound.
- Value of standing hay equals $80 minus cutting and baling cost of $29.43, which equals $50.57 per ton or 2.5 cents per pound.
Bids for standing hay may be discounted for harvest risk factors (e.g. weather) by 10 to 30 per cent.