# Calculating fixed and variable costs per bale?



## Lostin55 (Sep 21, 2013)

Hopefully, one or more of you is an accountant type that can help me out.

I was reading another recent thread that discussed custom baling vs. owning equipment. It occurred to me that I don't really know how to calculate fixed costs. The costs of maintenance, labor(that's me), and operating costs I can come up with.

Is there a formula to follow to arrive at a number per bale produced?

Assuming payment on land if applicable, taxes for the year, finance costs of equipment per year, irrigation costs if applicable, fertilizer? Do you calculate it that way or over the expected life of the equipment? Do you average the costs of tillage and seed in the equation somehow, possibly over the expected life of that seeded field? I just don't know where to start or how to arrive at a dollar amount per bale produced. It would probably be pretty helpful to have something a little more accurate than a WAG. Details please?


----------



## Hayman1 (Jul 6, 2013)

Lostin55 said:


> Hopefully, one or more of you is an accountant type that can help me out.
> 
> I was reading another recent thread that discussed custom baling vs. owning equipment. It occurred to me that I don't really know how to calculate fixed costs. The costs of maintenance, labor(that's me), and operating costs I can come up with.
> 
> ...


I am not an accountant, but I have calculated my cost to produce a bale. A few thoughts for you to consider. Prepare to be dismayed. You can make this very complicated or not so much so, it really depends on what you are trying to determine. In my case, it was my break even point for hay sales since all our hay is sold on a $s/bale basis.

If you are just trying to determine if it makes more sense to contract your baling, that is one question, if all haying operations, that is another-in those cases, the tillage is not relevant as those costs occur for all scenarios.

If you are trying to decide about buying your hay vs making it, then tillage and seeding etc costs matter.

Fertilizer, lime, and spraying are funny in that they can strongly influence yield and quality and so have a potential impact on number of bales thus cost per bale.

Then there are the intangibles- cutting on time, best quality getting baled before the rain-hard to place an absolute $ value but they are really important in the decision on which route to go.

As for figuring your costs, rent, repairs, fuel, parts, fertilizer, spraying, lime, for cutting, tedding, raking, baling and moving to storage all count. Forget your labor, you work for free or at least most of us do but any contract labor or contract equipment costs count. You have to decide how you are going to handle depreciation/cost ot have the equipment issue. Your labor compensation is what you clear after all that other stuff is paid for and all your hay is sold. If you are not selling and you are feeding it to livestock, your comparison just got more complicated. Good luck, rick


----------



## hog987 (Apr 5, 2011)

It can be hard to figure machinery cost. Its easy after you run a few bales through and upgrade the baler. Just take the difference in price divided by bales. For myself to make things simple Iam taking my payments divided by the bales I produce. Once my machines are payed for my cost will go down but at the moment that whats it cost me.

fertilizer $5/bale

baler $2/bale

twine $1/bale

gem dust $1/bale

tractor $2/bale

discbine $1.5/bale

fuel $1/bale

moving bales

off field $1/bale

Total $13.50

This does not include any rent or the cost of planting a hay filed. It also does not include repair costs. This is based on last year numbers. This year I got more land so therefore hope to make more bales. Fertilizer costs look like they should remain about the same but if I put up another 300-500 bales than my other costs per bale will go down.

Like I said this is not true cost over the life of the machine but it is what I need right now for cash flow to pay the machinery payments.


----------



## Lostin55 (Sep 21, 2013)

I should have been more clear.

I am not trying to do any comparison. I am trying to find out what my cost per bale is for the small square bales that I put up. I sell most of my hay, and use just enough to feed a few cows and feed the hard footed 1200 pound dogs.

I want to know how to properly calculate the true cost of each bale.

As always, I am used to working for free.


----------



## deadmoose (Oct 30, 2011)

Fixed costs:

Rent (includes taxes)
Seed and tillage, equipment, etc. It might make it easier to figure expected yield over life of stand. Same for equipment. If you have a thousand dollar piece that will be worth $1200 in 5 years or a $25000 piece worth half that in 5 makes a big difference.

Don't forget depreciation.


----------



## Tim/South (Dec 12, 2011)

Cost to produce hay is going to vary from different areas.

In my area we produce grass hay. We do not have to figure in the expense for over seeding every few years. We also are not able to sell hay for the price of hay which costs more to produce.

When we square baled I would always divide my number of bales by my fertilize costs. It surprised me that some years my fertilize cost per bale were much higher than other years. Lack of rain might take us from 110 bales per acre to 90 per acre. I never realized how quickly that added up until we figured it.


----------



## slowzuki (Mar 8, 2011)

To calc on your own, do you do your taxes? At least in Canada the form for farm reporting on your taxes pretty much has it all there.

Its sounds like you don't need to know fixed vs variable costs, just add expenses and capital costs together and divide by number of bales. If you have lots of activities that share your tractor and land it gets complicated and less accurate.

Ours are pretty straight forward:

Hay expenses for us:

Twine

Fuel

Equipment repairs

Lime

Herbicides

Fertilizer

Labour

Insurance on equipment/truck, liability

Property tax

Rent/Lease payments on land

Interest expenses on financing for hay stuff

Interest from mortgage on land

Interest on truck loan

Bad debt

Capital loss selling old equipment that doesn't bring your books value

Capital costs with depreciation expense that is different for each category:

Tractors

Hay equipment

Buildings

Truck

Trailer

Tools that are big enough to be capital purchases

Costs that do not factor in and can't be claimed:

Mortgage payments

Loan payments

Truck payments

Line of credit payments

Personal use items and personal use % of depreciation amounts

For us we have snow removal forming another big chunk of tractor use that has to be split off too.


----------



## covenanthay (Oct 2, 2009)

Direct costs are fairly easy to determine and apply to bales produced. Fixed cost is a little more challenging but still petty straight forward. I live in a heavy grain producing area and by producing hay instead of grain I am incurring what is called opportunity cost in economics. So I am giving up the opportunity to rent my ground to a grain farmer by growing hay so I use current average cash rent prices for my land cost. For machinery used only for hay production take current value and determine what rate of return you could get if you sold it and invested the money elsewhere like a CD, or stocks etc. You are giving up the opportunity to earn that return by investing oin equipment to make hay. For equipment that is used elsewhere on the farm, like tractors, trucks etc, figure there total value and what percentage of their use is for hay. For example, if you have mutiple use equipment with a value of $200,000 and is used 50% for haying and 50% for grain production, mutiply the $200,000 by 50% and mutiply that by the same rate of return you used for the hay only equipment. You must figure labor to have an accurate figure because if you weren't baling hay you could be gainfully employed elsewhere.


----------



## 8350HiTech (Jul 26, 2013)

Very well put, covenanthay. Too many people ignore opportunity cost entirely.


----------



## slowzuki (Mar 8, 2011)

There are reasons to not focus on opportunity cost alone, at least not on a per year basis alone. Think of 5,10 year etc or you may get yourself in a bind.



8350HiTech said:


> Very well put, covenanthay. Too many people ignore opportunity cost entirely.


----------

