I'm buying a new hay farm, good idea?

[OklaBrangusBreeder]

Opinions from the board:

Dad and I are closing on a 60 acre hay farm in the next few weeks. For just a bit of fertilizer, it grows a pretty good mixed bermuda/johnson grass hay cutting a few times a year. So, here is how I see the finances working.

Land Purchase:
* We're paying $100,000 for the land. I look at the land as a purchase unto itself. Kinda like buying a stock. I look for it to appreciate from today's (perhaps) deflated levels and make money over the life of ownership.

Hay Production - Fixed Costs:
* Like I said, I expect it will make about 400 bales a year. We'll assume the land will be owned for 10-years.
* We already bale hay and have some of the equipment. But honestly, those purchases were made with the anticipation of adding a hay farm in the near future, so I am including those costs (tractor/baler) in the economics of the new field purchase. For this size field, we'll have to upgrade the cutter and rake. The equipment investment looks like this:
- JD 5093E, $41,000 I bought new almost two years ago.
- JD 467 baler, $19,000 Dad bought used about 3 years ago.
- JD 635 MoCo, $26,000ish new which I plan to buy.
- Wheel Rake, $4,000ish new which I plan to buy.
* $90,000 cost of equipment total, amortized over 4000 bales over 10 years = $22.50 per bale.

Hay Production - Variable Costs:
* Fertilizer @ 200 pounds to the acre. That's 6 tons. I haven't checked fertilizer costs lately, let's say that works out to $5.50 per bale.
- Net Wrap is about $1 per bale.
- Fuel/maintenance costs I'm guessing to be about $1 per bale.
* That makes variable costs to be about $7.50 per bale.

So, fixed + variable costs I'm projecting to be about $30 per bale. I'm guessing the hay will sell for about $37.50 per bale on average. That would be a 25% profit margin based on the $30 a bale total cost of production.

That means the "dividend" on the land works out to be about $3,000 (400 bales per year @$7.50 per bale) or just 3% on the $100,000 land investment. (Note to self, there are a lot of stocks that pay more than 3% per year dividend and which probably will appreciate faster than the land will. Ugh).

Now, we are moving ahead with all this because frankly that is what Dad and I want to do. But I guess I am struggling a bit with the idea that it will make us that much net profit.

Can anyone poke a whole in my analysis and help feel better about this whole investment?

 

[whitewing]

The only jab I'd take is the assumption that today's price is "deflated"....in other words, that the value will improve over time. I'm pretty negative these days on real estate prices for the US market due to rising oil prices and their effects on the overall economy. How far is this place from where you're already situated.....also, how far is it from some major urban area? The greater the distance, the more the costs will likely be in the future to get there and back.

 

[Brute 23]

.... and stocks don't require you to do any thing.

I guess yall are paying cash since there is no interest on the loan figure in?

 

[Grippie]

Did you take taxes into account? Maybe I missed that... Here in NY, it's a huge factor.

 

[shaz]

Sounds like a good move and using the stock market as a reference point makes sense because your talking about what to do with the money you don't need for bills.

NOTE: I personally don't like the hay business due to past experience but my hay farm was just north of Huntsville AL and that's a bad area for ag in general. You may fair better.
Good luck

 

[dun]

Are you in the market to adopt an old man?

 

[tripleBfarms]

If the grass is that good, why not put some stockers on it in the spring, and sell in late summer. A lot less work, and you'd make about the same money, and you wouldn't wear out your hay equipment.

 

[bigbull338]

whoa you cant spead the $90,000 equipment cost over 400 bales that the bought hay meadow will make.you have to spead it over all your hayland.plus you also forgot that hiring 400 bales baled will cost you $8000 to $10,000 a year.so equipment pay off on 60acs is 9yrs.you also forgot to add in the cost of the standing grass wich is $6 a bale plus your moving an stacking the hay at $5 a bale.so using your figures your breakeven cost would be $41 a bale.an to make a profit youd have to sale hay for $50 a bale.wich means the place would make $3600 a yr.

 

[Kingfisher]

I didn't see any labor in your package..........it looks bleak from a investment pov in my humble opinion.

 

[novaman]

I'm just trying to get over the fact that anyone would pay $1667/acre for hay ground.

 

[bigbull338]

you really cant gripe about the price he gave for the place.heck he got it pretty cheap.

 

[shaz]

I'm just trying to get over the fact that anyone would pay $1667/acre for hay ground.

I paid 2500/acre for a hayfield in 2008. Sold the one north of Huntsville for 12K per acre. Land ain't cheap.

 

[agmantoo]

I never discourage anyone to buy land. I do search for property that has some type of what I call a feature in event that I may want to sell it later. The features could be that the property is in the "path of progress", has a nice view or lake or stream, highly productive and will cash flow, wooded with a future timber harvest, etc. With the debt for the farm machinery and the production of 400 bales of hay the return on the purchase is lacking IMO. Surely there is a better end use with a better return! If the property is worth $1667 how many head of momma cattle will it support? Why not hire the hay made and maximize the use of the land as pasture. Does the land have amply water and will it produce each year? Actually there is too little known to make a wise decision. Possibly Dad has deep pockets and this is for hobby and the financial return is immaterial. Land varies some much from location to location that the price per acre cannot be compared. Net return as a percentage for dollars spent may be a better evaluation.

 

[farmwriter]

I wish I could remember where, but didn't some egg-head not all that long ago do the math on what it takes to cut hay? Seems like I remember they concluded you can't make the equpiment pay for itself unless you're baling more than 400 acres.

 

[TexasBred]

Best I can tell using your own figures you and dad will be making $1,500 each. That's sort of like the old boy telling another about the price of eggs....not worth the wear and tear on the hen's ass. My :2cents:

 

[LRTX1]

Best I can tell using your own figures you and dad will be making $1,500 each. That's sort of like the old boy telling another about the price of eggs....not worth the wear and tear on the hen's ass. My :2cents:

Thats a priceless saying. Never heard it before.

 

[Angus Cowman]

I wish I could remember where, but didn't some egg-head not all that long ago do the math on what it takes to cut hay? Seems like I remember they concluded you can't make the equpiment pay for itself unless you're baling more than 400 acres.

I am not an egg head and I don't really care to be called one
I guess that would be no different than me calling you a horses ass
just a different animal and a different part of the anatomy

and No it wasn't 400 acres it was 400 bales
it was you basically had to use 400 bales before you could justify the cost of raising your own hay

 

[farmwriter]

I wish I could remember where, but didn't some egg-head not all that long ago do the math on what it takes to cut hay? Seems like I remember they concluded you can't make the equpiment pay for itself unless you're baling more than 400 acres.

I am not an egg head and I don't really care to be called one
I guess that would be no different than me calling you a horses ass
just a different animal and a different part of the anatomy

and No it wasn't 400 acres it was 400 bales
it was you basically had to use 400 bales before you could justify the cost of raising your own hay

Easy hun! That's right up next to hurting my feelings. My apologies if I offended you, as I don't even know what post you're referencing. I didn't mean to imply I read it here, I just thought someone else might have read the same thing. I'm off to google and try to locate.

 

[Isomade]

Undeveloped land as an investment is as safe as you can get. Given enough time it has always made money. With increasing population, and the fact that they haven't figured out how to make more of it, it is always a good investment. What you do with it after purchase determines if you actually get to keep any profits when the land is sold years down the road.

Wouldn't you agree Egg-Head? :lol: :lol:

 

[EAT BEEF]

Unless I can wear it out, I hate to buy new equipment. I think you'll make money on the land and loose on the equipment. Heck you can get someone to do all the work for about 20 a bale.Urea was $475 in Davis on tuesday.