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- Enterprise profitability analysis allows producers to look at their operation as a group of distinct enterprises. Enterprises can be evaluated on the basis of their ability to contribute to the profits of the operation, taking into consideration resource constraints, market opportunity, risk and uncertainty.
- The amount an enterprise contributes to the operation is known as the Contribution Margin. It must provide funds for interest, overhead and other indirect expenses as well as a return for living expenses, loan repayment and investment. These items should be included in the overall farm plan which will include a Projected Income Statement and Projected Cash Flow Statement.
- Most hay production is used on the farm to feed livestock. To realize an accurate Contribution Margin from the forage production, feed must be transferred to the livestock enterprise at fair market value. The livestock enterprises must "purchase" the feed from the feed enterprises in order to establish an appropriate profit picture.
- Because hay production is a long term enterprise, long term averages often need to be used to determine profitability. This includes yields, cost and values based on varying qualities.
- Because the year of establishment is an expensive year, the number of years a stand is productive will affect the costs of that establishment year. When doing a profitability analysis, estimate the number of years that the stand will be in production and the level of production in each year.
- When doing long term projections, strive to accurately project direct costs like fuel and machinery costs. Remember to include indirect costs like a return to investment.
- Filling niche markets often provide a secure source of profit. Tailoring production and harvest specific to a niche market can provide a lucrative profit. Markets like the horse feed markets, dairy cow feed markets or export markets can be a consistent business. Be aware that if the feed is not harvested to achieve the appropriate quality, the market will be lost and the feed will need to be sold at a discount.
- Be sure to measure the risks of harvest in order to fulfill those markets and apply the appropriate discount values to that feed if the feed is not appropriate quality.
- Not only do harvest dynamics create risk of downgraded quality, but so do storage conditions. When projecting profitability add in the added costs of storing the feed until it is sold and conversely, apply the necessary discount values for feed that has spoiled while in storage.
- Cash flow considerations enter into the equation when building a marketing plan. Niche markets may require many small sales over time to complete the sale of the hay crop. Other markets may be able to purchase the whole inventory in one transaction and the feed be moved out within a very short time.
Enterprise Budgets - Planning for Profit Forage
From Grain to Grass - What are the Costs?
Guidelines For Estimating Alfalfa Hay Production Costs
Guidelines for Estimating Alfalfa Hay Production Costs - available in PDF format only
Guidelines For Estimating Barley and Corn Silage Production Costs
Guidelines For Estimating Barley and Corn Silage Production Costs - 2014 - as an XL spreadsheet
Guidelines for Estimating Timothy Hay Production Costs - For Export - in PDF format only
Historical Turf and Forage Seed Prices in Alberta
Pricing Standing Hay
Manitoba Cost of Production
Small Square or Large Round bales
Valuing Feed on Moisture Content
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