FORAGES

FORAGE ECONOMICS

Forage Economics:
Find & Cut Hidden Costs

Geoff Benson, PhD
Dept of Agricultural and Resource Economics
North Carolina State University

Profitable forage systems balance forage performance, animal performance and economics. Forages are important because the production cost is significant and forage yield and quality affects total feed costs and animal performance. Variable yields and quality create risk.

NCSU enterprise budgets show a wide range of forage production costs on a dry matter basis. Permanent pasture is cheapest at 2.0 cents/lb and hay is the most expensive at 4.9 cents/lb. Summer annuals at 2.1 cents/lb and winter annuals at 2.3 cents/lb are cheaper than corn silage at 2.7 cents/lb is a little cheaper than small grain silage at 3.1 cents/lb. Therefore, choice of forage can have a big impact on cost. For example, if a beef cow needs to be offered 30 lb. of dry matter per day, yearly feed cost is $219 at 2.0 ˘ per lb but is $537 at 4.9 ˘ per lb. This does not include cost of getting the feed to the cow.

NCSU enterprise budgets include operating costs such as fertilizer, fuel, chemicals, labor, and seed. They also include fixed or ownership costs related to investments in machinery and buildings; depreciation, interest, taxes, insurance. Budgets also include yield estimates and “unit costs” per ton or per day of grazing. Some budgets include harvesting cost but do NOT include the cost of getting the forage to animals, farm overhead costs or a land charge. They can be found at: http://www.ag-econ.ncsu.edu/extension/Ag_budgets.html or through your county extension office.

The truest measure of cost is as the dry matter actually eaten by your livestock. Production costs are affected by harvestable yield & moisture content of feed. Other costs, including losses, occur from harvesting, including grazing management, storing and feeding out. Hay making costs are higher than many people realize, based on the NCSU budgets. Using 1999 equipment prices, small square bales cost $74 per ton of hay dry matter and large round bales cost $58 per ton. Hay as fed is usually around 85% dry matter. The cost of growing the hay crop must be added to this, say $35 to $40 per ton of dry matter, and when you add to this cost the risk of rain and losses, hay is an expensive feed. It behooves a producer to know his or her costs. Sometimes hay can be bought cheaper than it can be made. Hay needs can be reduced by pasture management practices, such as timing of fertilization, stockpiling and variety selection.

There is a cost to feeding out hay and managing grazing. For example, NCSU estimates of running a 1999 70-HP tractor to put out hay are ownership costs of $7.14/hour and operating costs of $6.10/hour, for a total of $13.24/hour. Add labor at, say, $8.00/hour and the total cost is $21.24/hour. Grazing management has a cost also, including investment in fencing, water and lanes, and time and equipment to move fences. An example of the time and equipment to move livestock might be a pick-up at $14.26/hour and labor at $8.00/hour, for a total cost of $22.26/hour.

Losses add to feed costs and can be hard to measure. Estimates from the University of Tennessee include: harvest losses of 5 to 50% of harvestable production, storage losses of 5 to 20% and feeding losses of 5 to 15%, depending on the type of crop and method of handling. Combined losses are 15 to 50% of the crop. So, for example, hay bought or made at $75/ton with a 25% loss is really costing $100 per ton of hay eaten.

Forage costs may be only part of the total ration cost, however, and supplementary feeds, minerals, etc. may be needed. When comparing alternative forages, yields and quality differ so it is important figure the total ration cost of meeting the nutritional needs of animals. Also, animal performance affects production and income, e.g., daily gain, milk per day, body condition. The effect on income and cost must be figured and compared, e.g., by looking at income over feed cost, when animal performance is affected by the type of ration.

Most producers have several forage procurement options, each with a different profit potential: growing your own, buying forage or forage substitutes and extenders, using custom work, and growing on shares. Contract production is becoming more common, both for silage production and hay making. Each option has multiple impacts on the farm, including work load, operating expenses, level of investment, income & cash flow, and risk.

A partial budget is a useful tool for assessing differences in cost and income for alternatives. We use the following example in grazing schools. Suppose you have 32 heifers to feed for a 120 days in winter and they need to eat 15 lb. of dry matter per day. It is early fall and you have 20 acres of fescue with 2,000 lb. of DM/acre. Or you could over-seed 16 acres of Bermuda grass with rye and get a 3,000 lb. DM/acre. You have four management options: 1. Stockpile the fescue and graze it intensively by moving cattle daily, 2. Stockpile fescue and graze it extensively, moving cattle every 14 days, 3. Make and feed fescue hay, and 4. Plant rye/ryegrass and graze it intensively.

Using the NCSU budgets, pasture costs are $38.85/ton of DM, making hay costs $58/ton of DM, managing the grazing costs $7.56 per trip and feeding hay costs $11.15 per trip. Additional hay is bought at $80/ton as fed when the pasture is used up. Losses are included.

There is a $1,962 high-low difference, with the highest cost 69% above the lowest! This is only an example and many factors affect the cost and feasibility of alternatives on a specific farm, including time available, labor cost or charge per hour, distance to the animals and equipment used. However, this example shows that pushing a pencil may reveal hidden profit opportunities.

Forage yields and quality vary year-to-year, introducing an element of risk. Options to cope with this include buying supplementary forages, buying commodities or by-products to stretch supplies, growing more acres, storing or selling surplus forage in good year, and growing more than one forage crop. Each option has a different cost that should be evaluated before choosing one.

In summary, there are hidden or unmeasured costs on many farms. The place to begin is by figuring animal dry matter and nutrient needs. Forage costs should be measured at the animal’s mouth and take account of production, storage, harvesting and feeding costs and losses. Estimate the impact of alternative forages on total feed cost and include any effects on animal performance and income. Investigate alternative procurement options including growing your own, buying, custom work, and contract production. Grazed pasture offers advantages over hay in terms of lower cost and higher quality feed if this fits your farming and family circumstances. However, you must know your own costs before you can evaluate forage options. There are no simple answers!