Hay and grain?

[cowman]

Not real sure what the price of fairly decent hay, in round bales, is worth but see ads in that $60/ton range or 3 cents a pound? Barley is being quoted in that $1.85 range or 3.85 cent/lb. range?
Now I would suspect barley is definitely a better feed value at $1.85/bu. than hay at $60/ton?
I always figure it this way: If barley is worth $2.50/bu then hay(round bale-1100 lb) should be worth ten times that plus $3 or $25 plus $3 for a total of $28? That formula may not be real accurate but it works for me. Of course a person might have to take into account simplicity of feeding etc.
Using my formula barley at $1.85/bu means hay should be $18.50 plus $3 or $21.50/per 1100/lb round bale.
Now it is unlikely anyone would want to sell hay at that price unless it is badly damaged, but the bottom line is it is a lot cheaper to feed barley and straw this year than hay?...providing you have a cheap source of straw?
28 lbs. of hay/day at 3 cents is 84 cents. 10 lbs of barley and 20 lbs. straw at 1 cent equals 58.5 cents?
On a 195 feeding period that works out to a saving of pretty close to $50/cow?
Once upon a time winter feed was our most expensive cost? Now it appears summer pasture is our most expensive cost! Pasture rates of $30/month are pretty well the norm around here or $1/day...while winter feeding is quite a bit cheaper! Of course that doesn't take into account machinery and time or the added volume when the calf is on the cow.
Still I wonder? With these dirt cheap prices for feed would drylotting cows make more sense? Garsts down in Iowa were doing this years ago with thousands of cows.
Not sure about the economics of silage this year? Grassfarmer paid $25/ton or 1.25 cents a pound. Not sure how much silage a cow requires but would guess in that 60 lb. range? That would work out to 75 cents a day? Maybe 60 lbs. is too high?

[PureCountry]

You can't talk cost comparisons w/o figuring in everything cowman. Calculate the cost of machinery, maintenance, depreciation, interest, and then see where you're at. Plus wintering costs are very different for someone calving in January as opposed to someone calving in June.

Hay or other forage - straw included - can be bale-grazed; barley cannot. There is a definite added cost any time you handle feed, but bales can be taken that extra step in reducing inputs.

We're gonna bale-graze hay and straw this winter once the swath-grazing is cleaned up. I just hope the snow and ice doesn't build up on the bales before we cut the twines off.

[cswilson]

I like to get my hay delivered to the cows mouth-while the guy I hire to unload is placing bales I'm pulling twines. We put out about a weeks worth at a time-there is a bit of waste but it is more than covered by the money we save by not owning or starting equipment every day. By feeding out in the pastures whatever they tramp in just grows more grass for next year.

[cowman]

I wonder at what point waste balances out machinery costs? Grant Lakusta(sp?) of Alberta Ag has done some work with bale feeding and he's sort of neutral on the whole thing.
He claims it costs more but in his case the time saved was worth more than the extra money. I guess it really comes down to where your priorities lie, which once again is how it always is? There is no right way or wrong way...just what works for you?

[cswilson]

I just never could get around spending 5 dollars to save 4-might have to dust off the Belgian's harness again if we have some snow.

[cowman]

Well I think Grant's idea was you spend four to save five? His contention was that while bale feeding was more costly than certain other feeding methods...the time factor was the selling point for him?
He just didn't have the time to feed cattle due to his job, so opted for bale feeding as a more expensive compromise? Obviously he is probably hauling down a good salary with Alberta Ag? He actually is a very common sense kind of guy who really is helpful with understanding a whole lot of cost/profit situations. If you ever get a chance to hear him speak, go for it, as he is a nuts and bolts kind of guy and very entertaining!
I suppose you could look on his cattle business as a hobby, even though he has 130 cows. I suspect the Ag job pays more than the cows.

[farmers_son]

Boys, the cow business has changed and it is going to change more within the next year. While it may be interesting to think about whether is it cheaper to buy hay versus grain or buy this or that I see the problem as being more how is anyone going to buy anything.

What about the value of our dollar? We are above 84 cents and there is no reason to believe the upward climb has reached its end. A 90 cent dollar is a real possibility and our dollar at par is not out of the question. While we were all busy watching to make sure we got the best value out of that $30 bale of hay we watched the value of our cow herd decline 33% as the value of our dollar rose. If the dollar reaches par the value of our cows has dropped 59%. Our fixed costs are just that, fixed. Loans that were taken out when the dollar was 63 cents may have to be paid back with a dollar at par. The real cost of repaying that loan will double if our dollar reaches par. Throw in higher energy costs and we are in an interesting situation.

The profitability in the cow calf industry that came strictly as a result of a softer dollar caused a shift in the cow calf industry from self sufficiency towards outsourcing critical supplies like feed and even pasture as producers sought to maximize their returns. That takes cash. If you listen carefully the sucking sound you hear is cash leaving the industry as our dollar gains in value. While focusing on the price of hay may be a nice way to reminisce about the good old days and it was a fun ride when the dollar was dropping it is not going be as much fun to ride the dollar back up. We are going to loose producers, there is no doubt about it, as debt repayment ability and net cash flow goes right out the window.

[cswilson]

Well farmers_son-maybe input costs are nothing to you-better to dither about the dollar etc-I tell you one thing you watch the pennies and the dollars take care of themselves.You think an 84 cent dollar maybe you better pull up a chair and listen to what ranching was like with 20 percent plus interest rates. Nice to hear somebody who knows nothing about my business tell me how to run it-as for fixed costs-they can be managed to some extent also-I tell you one thing sunshine I'll take an 84 cent dollar and 5 percent interest over 20 percent interest and 80 cent calves. This won't be the first storm us old reminiscers have weathered-we'll talk about it in 20 years if your still ranching lol.

[farmers_son]

Cswilson, I have considerable respect for your ability to run your operation. We will likely both still be raising livestock 20 years from now. I wasn’t trying to tell you how to run your business, just pointing out the stronger dollar is going to affect us more than the price of feed. It is important to watch the pennies. It is important to watch the dollars too.

Everyone’s cows eat and that is not going to change. How much we get for our calves changes quite a bit. The dollar is higher now than it was in 1982 and if it keeps increasing as it has within a year it will be higher than it was in 1977. We have enjoyed nearly 30 years of a steadily declining dollar reflected in higher prices for calves and increased asset values of both cows and land. That is already turned around and we are facing a very different ride as the dollar climbs back up.

You might be interested in this site showing the Canadian dollar since 1971

http://www.forecasts.org/data/data/EXCAUS.htm

The decline in the dollar over the last 30 years had the effect of increasing profitability per cow. Producers realized that if they purchased hay or pasture or both they could keep more cows than if they depended strictly upon home raised feed. More cows equaled more profit.

That is about to change. It is a certainty that profit per cow not to mention equity values are going to drop as our dollar keeps increasing in value. The producer who survives the transition to a dollar at or near par will be the one who best manages cashflow and debt which will not necessarily be the producer who has the lowest feeding costs.

I have not forgotten 20% interest. The effect of the increase of the Canadian dollar on producer’s profitability will be comparable to the damage cause by 20% interest. All things being equal we are looking at a stronger dollar causing decreases in income in the magnitude of 35-55% from 2002 levels, and that is figuring in nothing for BSE. For comparison purposes an increase in interest rates to 20% from 10% assuming a 25% debt to equity ratio and a 5% ROE would see a net reduction in profitability of 50%, similar to what we will see from the stronger dollar. However producers climbed out of the hole caused by 20% interest partly because of a declining dollar and resulting stronger prices for their production. The opposite is going to happen this time as prices decline. If debt is used to keep cash flowing the operation through the transition to a stronger dollar the hole will only get deeper and deeper.

FYI, interest rates were only above 18% for a total of 9 months and at or above 20% for five months, mostly in 1981. The effect of the stronger dollar on our industry will be felt for much longer than that.

See: http://www.bankofcanada.ca/pdf/annual_page45_page46.pdf

[farmers_son]

I discovered an error in the figures I used. The effect of 20% interest rates was, using my example, a reduction in net earnings in the range of 50%. The effect of a stronger dollar could be a reduction in gross revenues of 33%. That should put into perspective just how big a hammer we are going to be hit with.

[cowman]

I have always had a real hard time getting my head around this dollar thing? We deal in Canadian dollars not US dollars...so supposedly if our dollar is worth so much more than previously we should see American imports costing a lot less in Canadian dollars....I don't really see that happening?
I also wonder why everything is related to the American dollar? A good portion of everything we buy comes from Asia, especially China, so how does our currency stack up there? I suspect the so called strength of our Canadian dollar has more to do with the meltdown in the US economy and the high world prices for oil, rather than confidence in our great government in Ottawa?
You know farmers son, we are just little guys and we can't really do anything to change the world financial markets? If the world markets say the Canadian dollar is worth X amount of dollars, what can we do? If the bank of Canada says the interest rate is going to be 20%, what can we do?
Right now it is cheaper to buy feed than grow it? Might not be in the near future...but this year? You really can't grow barley for $1.85/bu and you can't grow hay for $20! I am sure someone will say "oh Yes you can" and that is fine, they are welcome to it and I will buy it from these super efficient producers!
Unless you are doing a large acreage of hay, the high cost of equipment does not justify putting up hay? In my opinion.
Time is money? Or at least that is how I have always looked at it? If I can make one hundred dollars an hour doing one thing and zero dollars an hour doing something else, how smart is it to waste my hour for nothing?...Or even worse PAY to work that hour! I believe everyone of us should realize how much we are being paid for every hour we put into every endeavor?
Being self sufficient in feed is fine if it makes sense? If you can make more money buying feed then that too makes sense?
Never forget growing your own feed comes with a lot of costs, that should be considered in their entirety? Labor, lost opportunities, weather related problems?
I am sure there are people who are very successful growing their own feed. I am sure their are others who are very successful buying feed...some years you win some years you lose...on both systems! The important thing here is whatever works for you...is the thing to do...for you! One size doesn't fit all.
Personally I am committed to being a low cost producer, without sacrificing too much production. For me that translates into as much profit as I can possibly squeeze out of each cow, without killing myself! It is a tricky balancing act that requires a lot of flexability!
I appreciate your ideas...they make me think. I appreciate the ideas of cswilson,grassfarmer etc. they represent a different way...and they make me think? Everybody in this world has something to teach you...everyday of your life? The value is not that you are going to do everything you might learn from people...but to consider the ideas they are putting forth?

[cswilson]

I think what I was trying to get across is to focus your energies on things in your operation you can control-like input costs etc. Unfortunately international monetary policy is beyond my realm of influence so I don't worry about fluctuations in the dollar as much as I do the cost of my most major expense.

[farmers_son]

I agree.

However we are forced to respond to market forces beyond our farm gate. While we do have direct influence over the expense side we also have to make decisions regarding herd size, amount of debt we can carry, need for off farm jobs, more or less machinery, even land rent and land purchases or sales.

Those decisions are often critical and strategic and directly impact the survival or success of the operation while feed decisions are largely routine. Up to now the right decision was more, more, more cows. At least up to 2002 the more cows you had the more money you made.

At some point we need to be aware that the change in the value of the dollar represents a dramatic and fundamental change in our industry that will negatively impact our competitiveness (defined as profitability). Every decision we make in the next few years must be made in context of the impact the dollar is going to have on all aspects of our operation.

By being aware of oncoming change we can be better prepared for it and make adjustments to our operation before adjustments are forced on us.

[cswilson]

At what point did you presume that because we were discussing hay costs that we weren't aware of the other things that impact profitability. If you are totally certain which way the dollar is headed maybe you should be a currency trader.here's a simple formula for profitability-Income has to be greater than expenses-works for 20 percent interest-90 cent Canadian dollar-drought-flood-how each of us applies his knowledge to make the formula work is what makes ranching the great business it is.

[farmers_son]

And if I was sure which way the price of hay was headed I could be a hay buyer.

Checking back I see the discussion mentioned hay, barley, straw, silage, drylotting, machinery, maintenance, depreciation, interest, swath grazing, twine, delivery, even Belgians. I threw in the dollar.

So was I wrong to mention the dollar? Even though there is not a line on my expense statement for exchange rates it is the number one item affecting my operations bottom line in this economic environment.
Our farm’s profitability has more to do with overall industry profitability than our individual management.

Darn good thing I never mentioned the price of fuel…LOL