Pershing County Alfalfa Hay Establishment, Production Costs and Returns, 2006

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1 Fact Sheet Pershing County Alfalfa Hay Establishment, Production Costs and Returns, 2006 Don Breazeale, Pershing County Extension Educator, University of Nevada Cooperative Extension Kynda Curtis, Assistant Professor and Extension Specialist, Department of Resource Economics, College of Agriculture, Biotechnology and Natural Resources, University of Nevada, Reno INTRODUCTION Sample costs and returns to establish and produce alfalfa hay under flood irrigation in Pershing County, Nevada, are presented in this publication. Pershing County has approximately 22,000 acres of alfalfa hay under cultivation. The value to the county is approximately $8 million dollars annually (Breazeale and Owens, 2005). This publication is intended to be a guide used to make production decisions, determine potential returns, and prepare business and marketing plans. Practices described are based on the production practices considered typical for this crop and region, but may not apply to every situation. A Your Farm column in Tables 1, and 2 is provided for your use. 1

2 ASSUMPTIONS The following assumptions refer to Tables 1 through 4 and reflect the typical costs and returns to establish and produce alfalfa hay stands under flood irrigation in Pershing County, Nevada. The practices described are not the recommendations of the University of Nevada, Reno, but rather the production practices and materials considered typical of a well-managed farm in the region, as determined by a producer panel in March Costs, materials, and practices are not applicable to all situations, as establishment and cultural practices vary among growers within the region. Farm. The representative farm consists of 1,000 acres, on which 750 acres is cultivated for alfalfa production. The remaining 250 acres would usually be in small grains as part of an alfalfa rotation regime, as well as owner and hired labor housing, machine shop, and roads. During the growing season, the enterprise will produce three cuttings of hay with an average of approximately 4.5 tons per acre. The land market value was estimated to be $1, per acre in Stand Establishment The establishment year follows a rotation year of winter wheat or barley. The establishment year consists of 18 months. The alfalfa stand life in Pershing County is eight years. Establishment year costs and returns are provided in Table 1. Land Preparation. Alfalfa hay is generally planted directly into the small grain stubble remaining after harvest. The land would have been lasar-leveled before the small grain crop was planted. Borders also would remain from the previous small grain crop. Planting. In early July, alfalfa seed is drilled or broadcast at a rate of 18 pounds per acre on to the stubble of the small grain crop. Fertilization. Approximately 250 pounds of * per acre are drilled into the soil along with the alfalfa seed at a cost of $58.75 per acre. Irrigation. Immediately after seeding, approximately 8 inches per acre of water is applied to the crop by flood irrigation. Two to three irrigation cycles will occur during the first growing season. Pest Management. An application of Roundup* will be required in the establishment year at 2.5 quarts per acre. However, one application of Select* herbicide ($20.00/acre) will also be applied to kill out any volunteer grain seedlings after irrigation has begun. Harvest. Harvest will begin in June (11 th month) of the establishment year and continue through September (14 th month). Aftermath grazing occurs in the fall and winter each year, however, all costs are the responsibility of the grazer. Establishment Investment. The alfalfa establishment investment cost is placed into the investment summary (Table 3) and is depreciated across the 8-year stand life. Production Cultural Practices and Material Inputs Irrigation. Irrigation begins in April and continues through the last cutting in September. Irrigation costs are shown in Tables 1 and 2 and cover the per acre cost of water at $20.00 for the entire season. Maintenance costs on ditches for hauling dirt to fix washouts, broken head gates, and machinery costs for weed control spraying on ditches are $7.00 per acre or $5, for the entire 750 acres of alfalfa. Fertilization. As a general rule, Pershing County producers rarely fertilize their alfalfa after establishment. 2

3 Pest Management. A variety of pest management activities are employed depending on the pest and cycle. Pest treatment will normally begin in April and continue through the growing season until late September or early October. Weeds. In most years there is no need for a weed control application during the growing season. However, in some years many growers will use a combination of Gramoxone and Pursuit* in the early season before spring growth starts at a cost of $20.00/acre. Insects. Aphids are the primary insect threat to alfalfa hay in Pershing County. While usually not an annual problem, insecticide will need to be applied approximately every third year for control purposes. A ground-rig is normally used and the cost for the rig and material is $15.00 per acre or $5.00 per acre annually. Vertebrates. Gophers are the primary vertebrate problem. Expenditures are not normally made to control them. Harvest. Harvest equipment owned by the farm and operated by the owner/operator and hired help consists of a mower/swather, rake, a baler pulled by a tractor, and a bale loader and wagon to haul and stack large bales. Labor. The owner/operator wage is based on an annual salary of $33, and 1 ½ hired laborers at an annually salary of $24, Benefits, payroll taxes, and worker s compensation insurance are all included in the labor costs. Employee housing and associated utilities are included in the farm investment costs. Yield. The 750 acres of alfalfa yields 4.5 tons per acre from three annual cuttings. Returns. Returns are based on market prices across a range of hay quality levels. An estimated price of $95.00 per ton of hay was used to calculate returns. Returns will vary during the growing season due to market conditions. Overhead and Capital Recovery Costs Cash Overhead. Cash overhead consists of various cash expenses paid out during the year. These costs include property taxes, interest, office expenses, liability and property insurance, as well as investment/machinery repairs. A complete listing of farm investments and associated costs can be found in Table 3. Interest on Operating Capital. Total operating capital is calculated based on 80% of total operating (variable) costs. The interest on operating capital is calculated at a rate of 6.5% for the six month production cycle. Property Taxes. Property taxes in Nevada differ across counties. For the purposes of this publication, investment property taxes are calculated at 1% of the average asset value of the property. Insurance. Insurance on farm investments vary, depending on the assets included and the amount of coverage. Property insurance provides coverage for property loss at.666% of the average asset value. Liability insurance covers accidents on the farm at an annual cost of $1, Fuel and Lube. The fuel and lube for all machinery and vehicles is calculated at 8% of the purchase price. Fuel and lube in the establishment year is 125% of that in a normal production year due to increased machinery use. Investment Repairs. Annual repairs are provided for all farm investments or capital recovery items that require maintenance. Annual repairs are calculated at 2% of the purchase price for buildings and equipment and 7% of the purchase price for machinery and vehicles. 3

4 Office & Travel. Office and travel costs are estimated at $3, for an average year. These expenses include office supplies, telephone service, Internet service, and travel expenses to educational seminars. Capital Recovery. Capital recovery costs are the annual depreciation (opportunity cost) of all farm investments. Capital recovery costs are calculated using straight line depreciation. Farm equipment may be purchased new or used, depending on producer preferences. Salvage Value. Salvage value is 10% of the new purchase price, which is an estimate of the remaining value of an investment at the end of its useful life. The salvage value for land is the purchase price, as land does not normally depreciate. Average Asset Value Computation Purchase Price + Salvage Value ( ) 2 Straight Line Depreciation Computation Purchase Price - Salvage Value ( ) Useful Life * The information given herein is supplied with the understanding that no discrimination is intended and no endorsement by Cooperative Extension is implied. REFERENCES Breazeale, Donald and Martin Owens (2005) Pershing County Agricultural Statistics. University of Nevada Cooperative Extension FS Orloff, Steve B., Karen M. Klonsky, and Richard L. De Moura (2001). Sample Costs to Establish and Produce Alfalfa Hay, Intermountain Region, Siskiyou County, Center Pivot Irrigation. Publication AF-IR-01-2, University of California Cooperative Extension. Smathers, Robert (2001). The Costs of Owning and Operating Farm Machinery in the Pacific Northwest A Pacific Northwest Publication #346. University of Idaho, Washington State University, and Oregon State University. NOTES Sample production costs and returns publications for significant agricultural products in various regions of Nevada are available online at the University of Nevada Cooperative Extension site at For additional information, contact the Department of Resource Economics at the University of Nevada, Reno at (775) or your local University of Nevada Cooperative Extension office. The University of Nevada, Reno is an equal opportunity, affirmative action employer and does not discriminate on the basis of race, color, religion, set, age, creed national origin, veteran status, physical or mental disability or sexual orientation in any program or activity it operates. The University of Nevada employs only United States citizens and aliens lawfully authorized to work in the United States. 4

5 Table 1: Pershing County Alfalfa Hay Establishment Costs Operating Establishment Costs Total Units Unit Price/Cost Per Unit Total Cost/Value Total Cost/Value Per Acre Your Farm OPERATING COSTS Herbicide Acre $20.00 $15, $20.00 Insecticide 2.50 Qts/Acre $11.25 $21, $28.13 Fertilizer Acre $58.75 $44, $58.75 Irrigation Acre $20.00 $15, $20.00 Alfalfa Seed Lbs/Acre $2.75 $37, $49.50 Operator Labor 1.00 Annual $33, $33, $44.00 Hired Labor 1.50 Annual $24, $36, $48.00 Accounting & Legal 1.00 Annual $2, $2, $2.67 Fuel & Lube 1.25 Annual $38, $47, $63.47 Maintenance 1.00 Annual $39, $39, $52.69 Utilities 1.00 Annual $8, $8, $11.33 Misc. (Ditch Maintenance) Acre $7.00 $5, $7.00 Interest Operating Capital $243, $ $7, $10.54 TOTAL OPERATING COSTS $312, $1, OWNERSHIP COSTS CASH OVERHEAD COSTS Liability Insurance $1, $2.40 Office & Travel $3, $4.00 Annual Investment Insurance $14, $19.82 Annual Investment Taxes $22, $29.76 TOTAL CASH OVERHEAD COSTS $41, $55.99 * NONCASH OVERHEAD COSTS (Capital Recovery) Buildings, Improvements, & Equipment $9, $12.96 Machinery & Vehicles $37, $50.54 TOTAL NONCASH OVERHEAD COSTS $47, $63.50 TOTAL OWNERSHIP COSTS $89, $ TOTAL COSTS $401, $ YEAR ONE INCOME Alfalfa Hay 4.50 Tons $95.00 $320, $ TOTAL GROSS INCOME $320, $ TOTAL ESTABLISHMENT INVESTMENT $81, $ * rounded to the highest whole number 5

6 Table 2: Pershing County Alfalfa Hay Production Costs and Returns Pershing County Forage Production Costs and Returns, 750 acres, 2006 Total Units Unit Price/Cost Per Unit Total Cost/Value Total Cost/Value Per Acre Your Farm GROSS INCOME Alfalfa Hay 4.50 Tons $95.00 $320, $ Aftermath Grazing 1.50 AUM/Acre $15.00 $16, $22.50 TOTAL GROSS INCOME $337, $ OPERATING COSTS Herbicide Acre $20.00 $15, $20.00 Insecticide Acre $5.00 $3, $5.00 Irrigation Acre $20.00 $15, $20.00 Operator Labor 1.00 Annual $33, $33, $44.00 Hired Labor 1.50 Annual $24, $36, $48.00 Accounting & Legal 1.00 Annual $2, $2, $2.67 Fuel & Lube 1.00 Annual $38, $38, $50.77 Maintenance 1.00 Annual $39, $39, $52.69 Utilities 1.00 Annual $8, $8, $11.33 Misc. (Ditch Maintenance) Acre $7.00 $5, $7.00 Interest Operating Capital $156, $ $5, $6.80 TOTAL OPERATING COSTS $201, $ INCOME ABOVE OPERATING COSTS $136, $ OWNERSHIP COSTS CASH OVERHEAD COSTS Liability Insurance $1, $2.40 Office & Travel $3, $4.00 Annual Investment Insurance $14, $19.82 Annual Investment Taxes $22, $29.76 TOTAL CASH OVERHEAD COSTS $41, $55.99 NONCASH OVERHEAD COSTS (Capital Recovery) Buildings, Improvements, & Equipment $19, $26.47 Machinery & Vehicles $37, $50.54 TOTAL NONCASH OVERHEAD COSTS $57, $77.01 TOTAL OWNERSHIP COSTS $99, $ TOTAL COSTS $300, $ NET PROJECTED RETURNS $36, $

7 Table 3: Investment Summary Description Purchase Price Useful Life (Yrs) Salvage Value Annual Capital Recovery Annual Insurance Annual Taxes Annual Repairs Annual Fuel & Lube Buildings, Improvements, and Equipment Owner Housing $150, $15, $2, $ $ $3, Labor Housing $60, $6, $2, $ $ $1, Shop (40X40) & Tools $60, $6, $2, $ $ $1, Land $1,800, $1,800, $0.00 $11, $18, $0.00 Metal Equipment Shed (20X80) $10, $1, $ $36.63 $55.00 $ Implements $30, $3, $1, $ $ $ Alfalfa Establishment $81, $10, Sub Total $2,191, NA $1,831, $19, $13, $19, $6, Machinery and Vehicles 140 HP Tractor w/ Loader $83, $8, $5, $ $ $5, $6, HP Tractor $58, $5, $3, $ $ $4, $4, HP Tractor $52, $5, $3, $ $ $3, $4, Sickle Swather w/14 ft Header $65, $6, $5, $ $ $4, $5, Bale Wagon $40, $4, $3, $ $ $2, $3, Baler $100, $10, $9, $ $ $7, $8, Bale Loader $30, $3, $2, $ $ $2, $2, Hydraulic Rake $11, $1, $ $41.39 $62.15 $ $ /2 Ton Pickup (2) $30, $3, $3, $ $ $2, $2, Wheeler $6, $ $1, $21.98 $33.00 $ $ Sub Total $476, NA $47, $37, $1, $2, $33, $38, Total $2,667, NA $1,878, $57, $14, $22, $39, $38,

8 Table 4: Monthly Cash Flow Description January February March April May June July August September October November December Total Production: Alfalfa Hay $0.00 $0.00 $0.00 $0.00 $0.00 $106, $106, $106, $0.00 $0.00 $0.00 $0.00 $320, Aftermath Grazing $5, $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $5, $5, $16, Total Income $0.00 $0.00 $0.00 $0.00 $0.00 $106, $106, $106, $0.00 $0.00 $5, $5, $337, Operating Inputs: Herbicide $0.00 $0.00 $2, $2, $2, $2, $2, $2, $2, $0.00 $0.00 $0.00 $15, Insecticide $0.00 $0.00 $ $ $ $ $ $ $ $0.00 $0.00 $0.00 $3, Irrigation $0.00 $0.00 $2, $2, $2, $2, $2, $2, $2, $0.00 $0.00 $0.00 $15, Operator Labor $2, $2, $2, $2, $2, $2, $2, $2, $2, $2, $2, $2, $33, Hired Labor $2, $2, $2, $4, $4, $4, $4, $4, $4, $2, $2, $2, $36, Accounting & Legal $ $ $ $ $ $ $ $ $ $ $ $ $2, Fuel & Lube $2, $2, $4, $4, $4, $4, $4, $4, $4, $2, $2, $2, $38, Maintenance $2, $2, $4, $4, $4, $4, $4, $4, $4, $2, $2, $2, $39, Utilities $ $ $ $ $ $ $ $ $ $ $ $ $8, Miscellaneous $ $ $ $ $ $ $ $ $ $ $ $ $5, Interest OC $ $ $ $ $ $ $ $ $ $ $ $ $5, Total Operating Costs $10, $10, $19, $21, $21, $21, $21, $21, $21, $10, $10, $10, $201, Net Returns -$10, $10, $19, $21, $21, $85, $85, $85, $21, $10, $4, $4, $136,