It’s almost always easier to save a dollar than it is to earn one.
Earning generally requires sweat, toil, and tied-up capital, while saving is often simply a case of doing less.
“Why are we in the hay business, when we’re really in the livestock business?” asked Jim Gerrish, an independent grazing lands consultant from Idaho, in a presentation at the recent Manitoba Grazing School.
“The big story is that 57 per cent of herd-to-herd variation in profit is explained by feed costs. There is nothing else that comes even remotely close to affecting profitability.”
If profit, simply put, is income minus costs, the quickest way to make more money is to cut costs per unit of production, he said.
People often don’t realize that getting bigger and chasing economies of scale is no solution. In business schools, students learn that unless gross margin – the difference between price per pound and operating costs – is greater than 50 per cent, there’s little advantage to increasing production.
Reducing costs has a greater impact on net profit, or the true bottom line. The problem, he said, is that most ranchers have no idea what it costs them to produce a pound of beef.
“If you’re already losing $100 per cow, let’s get 200 more of them and see how it works out,” said Gerrish.
Weaning weight has very little to do with profitability, he said, but the cost of feeding and producing hay has almost everything to do with it.
Most ranchers have made making hay a compulsive habit, he added. Even in Missouri and Mississippi, the “Garden of Eden” of grazing, ranchers still feed their herds for an average of 130 days of the year.
The round baler, which for the first time in history meant that one person could put up huge volumes of hay, made perfect sense at the time. That’s because in 1973, a Vermeer 605C cost $4,200, diesel sold for 11 cents per gallon, and labour was worth $1 per hour.
Now, those same inputs have risen tenfold or more, while beef prices are only 2.5 times higher.
That’s just one aspect of the cost of hay, he said. The nutrient value is often overlooked, because the vast majority of ranchers never put fertilizer on their hayfields.
One ton of hay removes 50 pounds of nitrogen (N), six pounds of phosphorus (P), and 40 pounds of potassium (K).
On an alfalfa-based hayfield, nitrogen comes from the air. But replacing the P and K carted away with the hay, costs about $25 at current prices. For pure grass stands, which need nitrogen, the cost rises to about $50 per ton of hay.
“I haven’t counted sulphur, zinc, copper, boron, molybdenum or any of those micronutrients. They have value, too. If we were putting those on, it might go up to $70 per ton,” said Gerrish.
Swathing, raking and baling add about $25 per ton for iron, oil and labour. Equipment ownership costs money, because eventually it wears out and needs to be replaced, so add $10 per ton in depreciation.
“I’ve heard a lot of people talking about buying hay for $35, $40, (or) $50 per ton. You know, there’s more fertility value in that hay than what you’re paying for it,” he said.
“You can get fertilizer for free if you buy hay from someone else and feed it on your place.”
Stand depreciation should be figured in, too, because it costs $50 to $200 per acre to reseed alfalfa.
HAY COST ANALYSIS
Gerrish, who does hay cost analysis for a living, says that rarely can anyone make hay for under $60 per ton. More commonly, the cost is about $80 when all costs are factored in.
Three tons of hay, a typical per-acre yield, removes 150 pounds of N, 18 pounds of P and 120 pounds of K. Grazing stockpiled forages, on the other hand, removes very little nutrients because 90 per cent of the good stuff gets dropped back onto the field in the form of manure and urine.
Because it takes about three tons of hay equivalent to make
500 pounds of beef, grazing instead of haying means that 500 pounds of beef walks away to market at a nutrient cost of only
16 pounds of N, five pounds of P, and one pound of K.
“That’s why grazing does not mine soil. It rearranges where the nutrients are,” he said. “Buy in some hay from a neighbour, feed it effectively, and you’ve probably taken care of your needs.”
Then there’s the opportunity cost of making hay all summer. Instead of going round the field, a rancher could spend the time building fences to divide paddocks into smaller, more manageable pieces, moving cattle through rotations to maximize grass efficiency, or building better watering systems.
“This is real value. It’s how you can build poor land. Buy someone else’s hay,” said Gerrish. daniel. [email protected]
“Ifyou’realreadylosing $100percow,let’sget 200moreofthemand seehowitworksout.”
– JIM GERRISH