Cows eating forage
January 25, 2017

Put Quality in Forage Contracts

 |  By: Mike Opperman

Two factors are changing the way producers look at forage production: labor and risk.

With a shorter labor supply, producers are finding it more difficult to find and allocate enough skilled workers to harvest forages in a timely manner. In addition, when margins are tight on dairy operations there becomes a greater need to manage risk. One way to minimize risk is to avoid investments in capital assets that have a low rate of return. Another is to gain greater control over feed quality.    

For these reasons producers may consider working with a custom operator to manage forage harvest.

Finding the right grower depends on capacity and quality. “Contract growers need to have the capacity to be able to harvest enough forages in a timely manner to fit forage volume needs,” says Jim Henry, silage specialist for Mycogen Seeds. “Beyond quantity, they also have to share your goals for quality.”

Expectations around quantity and quality need to be spelled out in the forage contract. The first rule of developing a good contract, says Joe Stellato, University of Wisconsin Extension agent, is to do business only with another party that you know and trust. “Any contract is only as good as the integrity of the parties who sign it,” he says.

The importance of forages to your dairy and the amount of money involved in an arrangement with a custom grower requires that the contract be in writing. And include an attorney in the process who can review the contract before it is formally signed. “It’s far cheaper to pay an attorney to review your contract before you sign than it will be to hire one to defend you in a lawsuit,” Stellato says.

Obviously a critical part of the contract is arriving at a price. Stellato recommends that each party determine their own cost of production and use that as a guide to determine profitable purchase and selling prices. “Arriving at prices that are profitable for both parties will protect each other from the wide price fluctuations that affect agriculture most years,” he says.

Because forages have such a large impact on production, Henry says part of the contract should also consider elements beyond pure tonnage that go into quality parameters. “When negotiating the contract think about important factors like hybrid selection, in-season management, harvest procedures, and moisture level,” he says. “Make sure that the planting, raising and harvesting is done right to achieve your forage goals. It should be worthwhile for producers to pay more for higher quality.”

Including your nutritionist in the conversation is important as well, Henry says, to make sure what gets harvested fits with what is needed in the operation.

One nutritionist who plays an active role in the conversation between producer and grower is Jed Asmus, an independent nutritionist located in Lodi, Calif. He actively participates in negotiations between his producer clients and the farmers who grow forages for them.

“I’m kind of the middle man to make sure my client’s best interests are secured so we get the best forage quality possible,” Asmus says. “We also want to make sure that we establish a long term relationship so we have a secure and consistent supply.”

To establish a good relationship, Asmus says that both parties have to win. “We understand that the farmers growing the crops have to get a margin, too.” To take out market swings, Asmus says his clients establish price based on a cost-of-production-plus-margin basis. “Everyone is open and honest with what it costs to produce forages on the grower side and feed costs on the producer side and we arrive at a happy medium.” He says employing this model helps avoid paying too much when the market is high, understanding that producers may overpay slightly when the market is low.

Tonnage is agreed upon in the contract with a cap on the high end to make sure the producer doesn’t pay for more than is needed. Quality is up to the producer. “The dairy producer decides when to harvest so he has control over quality, unless Mother Nature gets involved.”

Another way to make sure quality forages get harvested is to control the varieties that get planted. Ray Robinson is a dairy producer near Burley, Idaho who milks about 23,000 cows and contracts all of his forages.  Most of the corn silage comes from BMR corn varieties. Any silage put up with BMR corn gets fed to close-up, fresh, and high-end cows. The rest of the herd gets silage from conventional corn. “The BMR corn is more digestible so we definitely see a production benefit,” he says.

Like Asmus’ clients, Robinson controls harvest by running his own chopper crews. “That gives us more control over getting what we want,” he says. “Then if it doesn’t get put up right, it’s our own fault.”

Robinson’s nutritionist, Shane Holt, also plays an important role in making sure the right forages are harvested. “Shane spent a lot of time helping us put up better forages,” Robinson says. “It’s all about quality to make sure the cows are producing to their potential.” Each year before harvest starts Shane has a training session with the harvesting crews to make sure they understand the right procedures for putting up good forages.

There’s no doubt that high quality forages are critically important to a productive dairy. Contracting forages can be a solution to minimize labor needs and control risk, as long as quality is maintained.