The Economics of Hay Storage
Kentucky livestock producers strive to produce, store, and feed high quality hay. However, a great deal of hay is lost each year through storage. The most common hay storage method for round bales in Kentucky is probably on the ground. This requires no investment in supplies, materials, or facilities. However, a great deal of loss is incurred over time as hay makes contact with the ground. Recently, there has been increased interest in Kentucky on reducing the dry matter loss that occurs with outside storage and many Kentucky producers have moved to other hay storage methods. Much of this increased interest has been due to funds made available through Phase One cost share programs.
The purpose of this publication, and the Hay Storage Decision Aid that is used to address the question, is to provide livestock producers with a framework to evaluate and determine the most economical hay storage method for their operation. Before considering storage options, the producer should know how much hay he or she producers each year and the market value of that hay. As one evaluates a potential hay storage option, they should consider three primary factors: the cost of storage on a per bale basis, the useful life of the investment, and the expected dry matter loss.
We begin our evaluation by examining the economics of hay storage outside on the ground. This option is available to everyone and clearly requires no investment. However, outside storage on the ground is associated with the highest level of dry matter loss. Dry matter loss for this storage method can be as much as one third of the hay crop (AGR-62). This method will be used to compare against other hay storage options.
Dry matter loss can be reduced by as much as 38% by simply breaking contact between the bale and the ground. So the next step up from outside storage on the ground would likely be storing hay on a gravel pad in order to break this contact. This is still a rather inexpensive proposition, yet potential savings in dry matter loss are significant. Additional dry matter loss savings can be achieved by covering these bales with a simple reusable tarp while on the gravel pad. In the following analysis round bale storage on a gravel pad and round bale storage on a gravel pad with a tarp are considered two separate options.
Another option available to hay producers is plastic wrapping of bales stored on the ground. This option has the potential to reduce dry matter loss to as little as 5% (AGR-171). However, the range in dry matter loss may be wide as holes or wrapping problems can greatly increase this loss. Although the upfront costs are lower (no new equipment is required), new wrap is purchased each year and can be quite expensive on a per bale basis. Also, disposal of the wrap can be challenging and should be considered by the hay producer.
The final option available to the hay producer is storing hay under roof. This is the option that requires the largest capital investment and most likely will be the most expensive on a per bale basis. However, it minimizes the potential loss, and may have other uses when hay is not being stored. New structures such as hoops are becoming more common in Kentucky because they are cheaper to construct and result in about the same dry matter loss as a conventional shed. For the purpose of this analysis, no difference is made between the types of "under roof" storage. Reduction in dry matter loss should be the same, regardless of the type of structure. Producers who choose storage under roof are encouraged to explore all options to determine the most cost effective structure.
The Hay Storage Decision Tool was used to evaluate these five options for the beef operation:
- Outside Storage on Ground
- Outside Storage on Gravel Pad
- Outside Storage on Gravel Pad with Reusable Tarp
- Plastic Bale Wrap
- Under Roof Structure
The model results are based on the assumption that 100 tons of hay are produced each year. The value of the hay produced is considered to be $40 per ton. All four options are compared to storing hay outside on the ground. Dry matter loss for this method is assumed to be 30%. Outside storage on the ground is assumed to have no cost, but also the highest level of loss.
It was assumed that a 5,000 square feet gravel pad would be needed for storage of 100 tons of hay on the ground. The cost of the gravel and filter fabric are assumed to be $0.80 per square foot. When a tarp is used, a smaller pad is needed because a pyramid stacking system can be employed. It was assumed that a 2,500 square foot pad could be used in this situation. The useful life of the gravel pads were both assumed to be 10 years. However, the tarp was assumed to have a useful life of only 5 years, so the cost of 2 tarps ($750 each) is included in the "Outside on Gravel Pad with Tarp Option". Roughly 2,000 square feet would be needed under roof to store this amount of hay. Construction costs were assumed to be $3.00 per square foot. Bale wrap was assumed to costs $350 and be purchased each year. Note that in some cases, an additional attachment may need to be purchased in order to use plastic wrap with an existing baler. The assumptions made for each of the four storage options are shown in Table 1.
|Total Cost||Useful Life of Investment||Dry Matter Loss|
|Outside on Ground||-----------||--------------||30%|
|Outside on Gravel Pad||$4,000||10 years||20%|
|Outside on Gravel Pad with Tarp||$3,500||10 years (pad only)||10%|
|Plastic Bale Wrap||$350||1 year||7%|
|Under Roof||$6,000||25 years||5%|
The Hay Storage Decision Tool was used to determine which of these options yielded the highest net hay value based on these assumptions. The calculation is quite simple: Beginning Hay Value (100 tons x $40 per ton) minus dry matter loss (by option) minus interest, repairs, and insurance = Net Hay Value. Maintenance costs for the gravel pads are assumed to be $100 per year, while maintenance costs for the under roof facility were assumed to be $180 per year. Below are net hay values associated with these five storage options based on the proceeding set of assumptions.
- Outside on Ground - $2,800
- Outside on Gravel Pad - $2,700
- Outside on Gravel Pad with Tarp - $3,150
- Plastic Bale Wrap - $3,370
- Under Roof - $3,380
If a moderate quantity of hay is being produced, the two options that generally surface as recommendations are "under roof" storage and plastic wrap. At the 100 ton per year production level, the difference in net hay value between these two options is quite small based on the assumptions used in the proceeding calculations. One of the most crucial questions in evaluating this decision is the value of the hay being produced. More valuable hay will justify a larger storage investment because the value of the loss is greater. Secondly, because the plastic wrap method yields potentially variable reductions in dry matter loss, this assumption also becomes crucial.
In order to further explore the effects of these assumptions on the model results, the following sensitivity table is in included. Table 2 shows the option that yields the highest net hay value when the value of the hay being produced ranges from $20 to $80 per ton, and when the dry matter loss associated with plastic wrap ranges from 5% to 9%. The value of the hay produced per ton is along the top, while the expected dry matter loss from plastic wrap is shown down the left hand side of the table. All other assumptions are unchanged from the proceeding analysis. The table shows the recommended storage method based on those assumptions.
|5%||Plastic Wrap||Plastic Wrap||Plastic Wrap||Plastic Wrap||Plastic Wrap|
|6%||Plastic Wrap||Plastic Wrap||Plastic Wrap||Plastic Wrap||Under Roof|
|7%||Plastic Wrap||Plastic Wrap||Under Roof||Under Roof||Under Roof|
|8%||Plastic Wrap||Under Roof||Under Roof||Under Roof||Under Roof|
|9%||Under Roof||Under Roof||Under Roof||Under Roof||Under Roof|
Table 2 clearly shows that as hay becomes more valuable, larger investments make more sense in order to limit losses. It also shows that if losses can be kept low with plastic wrap, that it would be a good option for hay producers in many situations. Of course, the choice of hay storage method is one that the individual producer must make for his or herself. Many factors could come into this decision other than those that have been discussed in this publication. It is not the intent of the authors for this publication to serve as a single information source for hay storage decisions. Rather it is to help the hay producer to analyze potential hay storage options that are available and understand how those options might affect the amount of the hay that they feed or sell. A great deal of hay is lost each year due to storage and in many situations, the value of the hay crop can be increased by looking for alternative hay storage methods.