# What is your cost of production?



## stack em up (Mar 7, 2013)

Working on some year end business, its always interesting to figure cost of production. Whether its straight alfalfa, alfalfa/grass mix, straight grass, or somewhere in between, what is your cost of production per ton? I am always amazed at what it ACTUALLY costs to produce a ton of hay. I realize there is differences in quality, and that adds or detracts a little from cost of production. After I had to sell the cows, I figured my CoP per pound of beef, I was amazed where i could have changed management practices and made a big difference. Our corn/soybean CoP isnt totally done yet as we just finished harvest last tuesday. Insurance hasnt gotten back to us on total payment.

Im not totally done doing the math yet, so I will add mine when I get to that point.


----------



## StxPecans (Mar 3, 2018)

In my case ignorance may be bliss.


----------



## MrLuggs (Dec 14, 2015)

Yeah, I always feel a bit depressed working it out, it's all nice and good until you factor in equipment and building depreciation and you realize how little the margin in there. I think last year it worked out to like $115/ton COP.


----------



## StxPecans (Mar 3, 2018)

Do you factor in how much you paid yourself?


----------



## Aaroncboo (Sep 21, 2014)

Can someone explain building and Equipment depreciation in layman's terms? I understand what it is to a degree but it's not physical cash if I'm understanding it correctly which I'm most certainly not. When I was in college one of my Ag professors told us that custom combining and harvesting didn't make you any money because by the time you figure depreciation versus what you make you lost money. But yet it puts cash in your pocket where as not using it doesn't except in maybe resale value. I understand buildings go down in value over time but if it cost you say 20 grand to throw up a shed. Once it's paid off besides maintenance and taxes it doesn't cost anything. How would depreciation work against you in that situation? I've never quite understood it. Maybe I'm just thinking more physical cash at the end of the year what I brought in verse what I'm paying out and not thinking of the fact that stuff goes down in value whether you see it or not.


----------



## IHCman (Aug 27, 2011)

I don't even want to figure it out on the alfalfa this year. With the lack of rain 1st and 2nd cuts were hurt a bit. Didn't take a 3rd, so that'll make the cost go up with the yield down.

Corn silage cost I did some quick figuring. Last year year was around 20 per ton, this year closer to $30 per ton. Expenses were very similar with chopping rates a bit cheaper this year as they could go faster with less tons per acre. Tons per acre were way less this year than last year as dry as it was.

20 ton per acre last year (also dry but not as bad as this year) 15 ton per acre this year.


----------



## PaMike (Dec 7, 2013)

My cost of production is higher than me selling price. I know that much. Further analysis isnt needed...


----------



## swmnhay (Jun 13, 2008)

I had not figured it out for awhile,so here it goes.

Land cost 200
Seed and seeding cost 125 pro rated over 5 years = $25
Fertilizer $100
Machinery cost using custom rates $151.50
Total per yr $476.50

Average yield 5.5 ton

Cost per ton = $86.63

Delivery adds $10 a ton figuring $100 hr

Now for the $64,000 question are my costs more or less then what custom rates are.
I figured 16 acre to cut
7 acre to rake
$12 a bale for 1600 lbs

Dang I liked COP better 25 yrs ago.
125 land cost
70 fertilizer.
Machinery costs were about 1/2 of what they are today.
Hay was about the same price as of today


----------



## VA Haymaker (Jul 1, 2014)

Aaroncboo said:


> Can someone explain building and Equipment depreciation in layman's terms? I understand what it is to a degree but it's not physical cash if I'm understanding it correctly which I'm most certainly not. When I was in college one of my Ag professors told us that custom combining and harvesting didn't make you any money because by the time you figure depreciation versus what you make you lost money. But yet it puts cash in your pocket where as not using it doesn't except in maybe resale value. I understand buildings go down in value over time but if it cost you say 20 grand to throw up a shed. Once it's paid off besides maintenance and taxes it doesn't cost anything. How would depreciation work against you in that situation? I've never quite understood it. Maybe I'm just thinking more physical cash at the end of the year what I brought in verse what I'm paying out and not thinking of the fact that stuff goes down in value whether you see it or not.


Depreciation allows you to use 100% of your dollar tax free when you purchase ag related stuff. When you sell it later, let's say after it's fully depreciated, then you pay taxes on the sale amount as income. If you bought a tractor for 50K depreciated it and 10 years later sold it for 25K, you'd pay taxes on that amount and you got to spend 25k tax free. IRS treats ag items as if they were depreciated regardless if they were, so if you spent after tax dollars - 50k on the tractor and sold it 10 years later for 25k, the IRS would treat that sale as taxable income, so you would have paid tax on 75k vs a 25k after 10 years. Get a good FARM accountant, a business plan, file a schedule F and use the tax code to your benefit.


----------



## swmnhay (Jun 13, 2008)

Another part of depritiation is to figure the value of it you use each yr and is part of your annual cost.It also can help keep track of your net worth from yr to yr.My banker always used FIn Pin??and he plugged in 10% annual depritiation on all eq.I argued with him a little about that because after 10 yrs a tractor is not worth 0 but they just used it as a guide and I think it was easier for them to compare how one was doing compared to others.

IIRC FIn Pin is a program designed at U of M.It was interesting to see how one did year to year.

So say you have $100,000 in eq @ 10% annual depritiation that would be 10,000 yr added to the annual cost of production


----------



## stack em up (Mar 7, 2013)

swmnhay said:


> Another part of depritiation is to figure the value of it you use each yr and is part of your annual cost.It also can help keep track of your net worth from yr to yr.My banker always used FIn Pin??and he plugged in 10% annual depritiation on all eq.I argued with him a little about that because after 10 yrs a tractor is not worth 0 but they just used it as a guide and I think it was easier for them to compare how one was doing compared to others.
> IIRC FIn Pin is a program designed at U of M.It was interesting to see how one did year to year.
> So say you have $100,000 in eq @ 10% annual depritiation that would be 10,000 yr added to the annual cost of production


Both FinBin and FinPack were created by the U of M Center for Farm Financial Management.

And my not totally official but pretty official numbers for cop are $94.12 per ton.


----------



## hillside hay (Feb 4, 2013)

125 per ton. No equipment loans either.


----------



## farmersamm (Nov 2, 2017)

A Capital Expense (buildings, and equipment) is parsed over time. Generally the arbitrary "expected life of the asset"

It's a fixed expense, and recurs like clockwork every year. Until the asset is fully depreciated.

IRS likes depreciation. Otherwise you could take that expense in the current tax year, and avoid paying a great deal of taxes in that year. They like dribbling the payback over years. And, it's actually fairly reasonable in common sense terms...&#8230;.buying a tractor isn't really a measure of your current years expenses.....if it was, it would look like you didn't make a dime (this comes into play on financial statements), which your banker looks at to determine whether your operation is profitable.

The real key factor is Owners Liability. Which includes your debt load. Can you sustain your operation (given profitability taking into consideration fixed/variable expenses, including depreciation) while servicing your debts. This what bit farmers in the ass during the late 80's. Corrupt lenders (and financially ignorant farmers), leveraged their operations based on high value of one asset......Land. Problem was....they could get loans cause the balance sheet looked good.....but couldn't service those loans.

It's been a century since I studied this crap, so I might not be spot on. Hope it helps


----------



## farmersamm (Nov 2, 2017)

Gotta remember, a balance sheet is a "point in time" document. Stuff that occurs after it's prepared can rock your world


----------



## endrow (Dec 15, 2011)

I don't carry that load I did it one time. But we still Farm a fair amount of ground and if we pick up a piece we often end up using the credit line. To keep a credit line in place for growing crops you need your cost of production. That's about 99% of the time a requirement... we are in a program with Farm Bureau they provide you with the software to collect your data then we have an account supervisor who comes up with production costs, income tax information, just about anything we need in that regards. Cost of production is always a pain to calculate here on our farm. On a dry year the dairy herd consumes about 60% of what we grow and the rest is for cash crops. On a wet year it may take only 30 to 40% for the dairy farm the rest is for sale for cash... and of course you got the equipment how much fuel or repair expense or the depreciation schedule goes towards the production of milk, how much goes towards cash cropping. It is simple enough to put all the crops in one category and just credits em over to the dairy you would think, but at the end of the day there's always a fly in the ointment.............. currently when we buy a piece of equipment we can depreciate 50% of that the year we buy it. The remaining goes on a depreciation schedule and the depreciation schedule for our farm equipment is seven years.. we'd appreciate any real estate related equipment in 10 years. Some longer-term items can be depreciated in 20 years..


----------



## r82230 (Mar 1, 2016)

Give me a little time and I will 'clean up' my spreadsheet that I have used with hay production, so that others could use if desired. Might be a couple of cold winter nights before it happens though.  But what else is there to do on them cold long days? Can't really stand watching the idiot box and the wife doesn't like me chasing her around the house like she use to. 

Larry


----------



## swmnhay (Jun 13, 2008)

farmersamm said:


> Gotta remember, a balance sheet is a "point in time" document. Stuff that occurs after it's prepared can rock your world


Yes it can but if done every yr at the same time for years it realy does show you how you are doing.Other things can show up also like high family living expenses,etc,etc


----------



## siscofarms (Nov 23, 2010)

This exact topic is why ,although I do sell hay still , I started processing it threw my own cows . And even then , a slip at the sale barn that day can ruin all that . But numbers work better when I feed my own stuff . And now I price my hay like it should be and not worry If Joe blow buys it or not . Some still do but giving up the small squares for strictly round bales was a major lost in customers .


----------



## endrow (Dec 15, 2011)

siscofarms said:


> This exact topic is why ,although I do sell hay still , I started processing it threw my own cows . And even then , a slip at the sale barn that day can ruin all that . But numbers work better when I feed my own stuff . And now I price my hay like it should be and not worry If Joe blow buys it or not . Some still do but giving up the small squares for strictly round bales was a major lost in customers .


 I always said we have to have cattle around because of all the hay that doesn't turn out right and won't bring top dollar. My uncle always said we sell a lot of fancy hay or cows eat the mistakes... with hay prices right now looking pretty good $35 calves. And $400 cull cows and $600 springing heifers and $14 milk.. I'm starting to feel differently


----------



## paoutdoorsman (Apr 23, 2016)

farmersamm said:


> It's been a century since I studied this crap, so I might not be spot on. Hope it helps


Just how old are you farmersamm?


----------



## StxPecans (Mar 3, 2018)

I plan on only feeding hay. No cubes or other stuff. I do feed dry loose mineral.
But watching everyone else with protein tubs, or molasses licks or cube feeding trailers i am wondering how fhey are turning a profit.
With the cost of my hay equipment, and cost of fertilizing my fields and planting winter hay crops i figure it at about 20$ a bale. This does not include tractor cost or diesel. But the tractors have more duties and diesel isnt that much per bale.
Also figuring my hay equipment on what my yearly payments are on it. So if i am lucky i will get a few free years someday.


----------



## r82230 (Mar 1, 2016)

As promised, here is an early Christmas present (or something to make you add to your New Year's resolution list). 

If you don't have good records/information , IDK if this spreadsheet is going to help you today, but IF you start gathering good info, it may help you in the future .

How this spreadsheet came about is I was trying to put the numbers together on the pay back / value of adding SS bales back into my operation. I have expanded the spreadsheet to give more folks a shot at using in their operation.

The numbers I have in the sheet are some of mine and some made up (test running of the calculations).

HTH and have a Great Holiday Season, no matter how bad (or good) your numbers come out. Just remember I just created the messager (spreadsheet), what you do with it is your decision.

Any questions or possible changes let me know (PM if you desire).

Larry

PS Seems I can not upload a spreadsheet (could the instructions however), so send me a PM and I will try to e-mail it to you, naturally no warranty.  And I can up load the PDF of the spreadsheet, so you can see the outcome.

Short version, being the PDF is separated by pages.

1st cutting RB (5'x5', 1250#)- $41.35 SS (52#) - $1.72

2nd cutting RB (1325#) - $60.36 SS (58#) - $2.64

3rd cutting RB (1325#) - $62.62 SS (58#) - $2.74

4th cutting RB (1325#) - $65.63 SS (58#) - $2.87

Selling 1st RB @ $55 (sold out), 2-4th @ $65 (none for sale, BTW & priced too cheap!). 1st cutting SS @ $5 (sold out), 2-4th SS $7.50 (almost gone, less than 700 left).


----------



## somedevildawg (Jun 20, 2011)

I have about 3.25 in every small square and $33 in every round......depending on quantity of course, this year my COP is higher as less is stored in the barn, probably 4.25 for small squares. Same deal on the rounds if they were stored inside, unfortunately very few stored inside this year....


----------



## hayray (Feb 23, 2009)

$123/ ton last year during drought, previous year was $89/ton. I have had it as low as $59/ton on really high yielding years.


----------



## paoutdoorsman (Apr 23, 2016)

For anyone interested in Larry's Christmas present (Hay Costs Calculator), you can download it here. All credit to Larry, I just hosted it for him.


----------



## r82230 (Mar 1, 2016)

paoutdoorsman said:


> I just hosted it for him.


Need to thank Dana too, for hosting, I'd have no idea on the "how to" for that. Until he mention it (and graciously offered to host ) I was lost on how to make it available on HT. :huh:

Larry


----------



## RockyHill (Apr 24, 2013)

Wow! Thanks to both of you. I might even be able to use that and save the info instead of my notebook that requires flipping back through a lot of pages and see if I can recall what all the scribbling is about. The ole notebook page will have figureing for planting, recipes, prices for comparison shopping of whatever is on our mind at the time, possible campgrounds should be be able to get away, etc.  But, there is the "real" notebook that has all the details for planting and spraying, no extra things allowed in there.

Shelia


----------



## r82230 (Mar 1, 2016)

Couple of other things (thoughts) on spreadsheet:


There is no 'credit' given for N if planting something like corn following alfalfa. Most likely won't be applicable for some growers, along with how much N would be available for next crop, plus value of N.
I did not include the 'cost' of moving hay from field to market and/or storage (nor the cost of 'marketing' or load out/delivery), my thinking was too many intangibles. So you would need to figure that aspect out for your own operation.

Larry


----------

