For those landowners who typically lease or harvest grasslands for hay, contracting for services is a learned business that can have local variations in how the grass and associated services are valued. For those who own grasslands not typically harvested for hay, contracting for services can be an intimidating endeavor, especially if one lacks the background knowledge necessary for estimating values.
Grass crop values are driven by supply and demand and can be impacted by local or regional factors such as drought, cattle markets, and the overall feed market. Therefore, determining a “fair” pricing system for mixed hay, CRP grass, prairie grass, or old field forage can be challenging.
Making An Agreement
Traditionally, hay crop harvest agreements are a per-acre cash basis or a crop sharing basis. In both systems, the individual harvesting the hay takes on all associated expenses. In a per-acre system, the landowners are paid a flat rate for the hay crop based on a pre-set dollar per-acre agreement regardless of the actual tonnage harvested. In the crop share system, the landowner and the harvester split the final crop on a pre-determined percentage. In this case, the harvester may have the option to purchase the landowners share of the crop.
Landowners that have no interest in physical retention of the hay crop also utilize cash-based contract agreements. These agreements are a hybrid between cash rent and share cropping and account for total hay value less the pre-determined value of the cost of production. This system encourages the hay contractor and landowner to discuss and agree upon an up-front fixed rate for harvest expenses, for which the hay contractor is fully reimbursed regardless of the value of the hay. After the crop is harvested and valued, the pre-determined harvest expense is subtracted and the harvester pays the landowner the remainder value and takes possession of the hay crop.
A cash agreement offers a great deal of appeal for landowners and hay contractors because it can reduce ambiguity in the relationship, therefore decreasing the risk of a contract being considered ‘unfair’ by one or both parties. Cash agreements allow for the landowner to reap increased rewards during high yield years while protecting the hay contractor in low yield years.
The Healthy Grasslands article series is provided by the South Dakota Grassland Coalition in partnership with SDSU Extension. Contributing editors: Sandy Smart (SDSU Extension Rangeland Management Specialist), Pete Bauman (SDSU Extension Range Field Specialist), and Joshua Lefers (South Dakota Grassland Coalition Board Member, 2015–2017). © South Dakota Grassland Coalition 2017. View the full document for more information.