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I'm buying a new hay farm, good idea?
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<blockquote data-quote="OklaBrangusBreeder" data-source="post: 818359" data-attributes="member: 2672"><p>Opinions from the board:</p><p></p><p>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.</p><p></p><p>Land Purchase:</p><p>* 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.</p><p></p><p>Hay Production - Fixed Costs:</p><p>* Like I said, I expect it will make about 400 bales a year. We'll assume the land will be owned for 10-years.</p><p>* 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:</p><p> - JD 5093E, $41,000 I bought new almost two years ago.</p><p> - JD 467 baler, $19,000 Dad bought used about 3 years ago.</p><p> - JD 635 MoCo, $26,000ish new which I plan to buy.</p><p> - Wheel Rake, $4,000ish new which I plan to buy.</p><p>* $90,000 cost of equipment total, amortized over 4000 bales over 10 years = $22.50 per bale.</p><p></p><p>Hay Production - Variable Costs:</p><p>* 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.</p><p> - Net Wrap is about $1 per bale.</p><p> - Fuel/maintenance costs I'm guessing to be about $1 per bale.</p><p>* That makes variable costs to be about $7.50 per bale.</p><p></p><p>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.</p><p></p><p>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).</p><p></p><p>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. </p><p></p><p>Can anyone poke a whole in my analysis and help feel better about this whole investment?</p></blockquote><p></p>
[QUOTE="OklaBrangusBreeder, post: 818359, member: 2672"] 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? [/QUOTE]
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