Plan ahead for grain versus hay contingencies

Gross margin comparisons form a sound basis for decisions on whether to cut crops for hay after weather damage.

PHOTOS: Brad Collis

Key Points

  • Drought, heat shock and frost can render grain crops unviable and make hay a sensible option to increase profit or reduce losses.
  • Growers need to be prepared and make gross-margin comparisons when deciding whether to persist with a crop or cut it for hay.
  • Contingencies and data should be in place to reduce stress and assist the decision-making process when conditions punish crops.
  • There are several factors that should be planned for early in the season for later consideration if necessary.

Gross margins

Gross-margin comparisons form a sound basis for decisions and can include numerous variables, such as prices for hay depending on its nutrient and energy levels.

In the case study detailed in Table 1, the heavier soils had a grain return of $14 per hectare less than hay. However, the grower chose grain as the preferred option due to the perceived higher weather risk with hay. For the crop on the lighter soils, hay clearly provided a more profitable alternative.

Hay gross margin
   Heavier soil
 Lighter soil
Your figures
Table 1 Using calculations to compare the gross margin for hay and grain
Step 1: Estimate gross return per hectare
Estimate yield
A
 1 2 $____/t
Estimate your sell price (farm gate basis)
B  190 190  
Total gross return per ha (A x B)
C  190 380 $____/t
Step 2: Determine pre-baling expenses
Cut with draper front (header) side by side 70ft rows
 D
 35  35 ____/ha
Contract raking
 E  7  7 ____/ha
Other  F     ____/ha
Subtotal step 2 (D+E+F)
 G  42  42 ____/ha

     
Step 3: Determine baling and post-baling expenses
Baling  H  20 20
 $____/bale
Stacking  I  8  8  $____/bale
Other  J      $____/bale
Subtotal (H+I+J)
 K  28 28
 $____/bale
Step 4: Determine bales per hectare and cost per hectare
       
Estimate bale weights
 L 600 600  ____kg
Bales per ha= yield (A) divided by bale weight (L) x 1000
 M 1.7 3.3 $____bales/ha
Cost per ha = (M) multiplied by cost per bale (K)
 N 46 93  
Step 5: Calculate gross margin
Calculate total cost per ha (G+N)
 O 88 135 $____ha
Calculate hay gross margin (C–O)
 P 102 245
$____ha

Grain gross margin

Step 1: Estimate gross return per hectare
Estimate yield
 Q 0.5 0.8 ____t/ha
Estimate your sell price (farm gate basis)
 R 260 260 $____/t
Total gross return per ha (QxR)
 S 130 195 $____ha
Step 2: Determine your harvest expenses
Header contractor
 T 35 35 ____/ha
Handling  U 7
 7 ____/ha 
Other  V     ____/ha
Subtotal Step 2 (T+U+V)
W
 42  42  
Step 3: Calculate gross margin


Calculate grain gross margin (S–W)
X
 88  153 $____ha

Which return is best – hay (P) or grain (X)?

Difference between the hay and grain gross margin (P and X)

   14  92 $____ha

Note: This simple spreadsheet is adapted from a Feed Central template. Price is based on farm gate. In both examples it is assumed that cost for cutting hay and harvesting the grain are the same. In reality, this will vary and figures can be adjusted accordingly.

Logistics

The logistical challenges of hay can vary according to whether growers have at least some of the machinery or storage required, such as a mower-conditioner or baler.

Many growers need to contract-in the full suite of machinery and labour. As contractors can quickly become fully booked, growers should stay in contact even in years when hay is not likely to be cut. A hay operation involves a new set of skills and timing is critical. Growers should consider how involved they can be in the logistics, including marketing. It may be more cost and time-effective to engage the skills of the contractor on a ‘share of hay’ basis where logistics and market risk is shared.

Cost and logistics of storage is another consideration. Be clear about how much hay can be stored in existing on-farm facilities. Tarps are a storage option, as are caps.

Markets

Prices can be fluid and, at a minimum, growers should be aware of what is happening in the domestic hay markets, including the dairy industry and its surrounding hay-producing areas.

The Australian Fodder Industry Association recommends consulting the Dairy Australia national hay market weekly updates to monitor price movements. The prices quoted include transportation to the end user.

Hay should not be treated with any less regard than grain. Assume that buyers will want information about chemicals used on the crop through the season.

Feed testing helps determine the appropriate end-user targets and therefore the price range. Feed testing is also a good marketing tool. It allows the grower to be ‘on the front foot’ and negotiate prices more confidently.

The range of customers will vary depending on seasonal conditions, particularly in dry times when the non-dairy livestock industry requires volume. Proactive growers maintain links with hay buyers and are prepared to advertise if necessary.

Even when hay production rises sharply the market includes sufficient customer demand to absorb increased supply; however, hay storage is required.

Risk

Weather is an overarching parameter as rain and wind affect hay quality more than grain quality. So an additional weather risk factor for hay should be allowed when comparing financial returns.

Set against the additional risk factor of rain and/or wind may be other benefits that come with cutting hay, such as weed control.

Case study: Deciding to cut grain crops for hay

The low rainfall and frosts in 2015 affected a Victorian northern Wimmera grower who had reduced the area sown to canola, increased the amount of wheat and barley in the enterprise, and had a paddock of lentils. Prime lamb production, based on a 500-ewe flock, is also part of the business.

In late September, crops were under moisture stress so the grain yield was uncertain. Gross margin comparisons were required to determine whether there was more value in cutting the crops for hay or harvesting for grain. Cut samples from the heavier and lighter soils were tested to estimate hay yields.

The cereal crop on the heavier soil had an estimated grain yield of 0.5 tonnes per hectare, while hay cuts indicated a yield of 1t/ha.

On the heavier soil the gross margin projection for hay was $102/ha compared with $88/ha for grain (Table 1). However, the high risk of weather for hay and some contamination from old straw resulted in the decision to harvest for grain.

The crop on the lighter soil had better biomass, but had been frost-affected. It had a predicted grain yield of 0.8t/ha and a hay yield of 2t/ha.

On the lighter soils the return for grain was anticipated to be $153/ha compared with $245/ha for hay. The gross-margin advantage of hay in this case saw it being cut. Hay also provided benefits for controlling weeds such as ryegrass.

More information:

ORM,
03 5441 6176,
admin@orm.com.au

Next:

Gene technology unites and divides outlook

Previous:

Clean vehicles a must for weed biosecurity

GRDC Project Code ORM00015

Region National