Of course, you would not want to do a significant amount of baling with a small tractor, but it does go the OP's question can you do limited baling (small square bales on very limited acreage) with a 25 HP compact tractor. It probably would even be a bit easier with the previously refenced small round balers.
Heck, most farmers in this area consider a 100 HP tractor to be the right size to bale with a full sized round baler.