Matt Diersen was expecting supply-side numbers in USDA's Aug. 1 Crop Production report to be on the short side, what with 2011 hay acreage at extremely low levels and a variety of weather factors severely crimping early season production in many parts of the country. Even so, when the report was released on Aug. 11, the South Dakota State University Extension ag economist admits to being more than a little surprised.

"It's another shocker," Diersen says. "We all knew that acres would be down, but I don't think anybody was expecting yields and overall production, across both alfalfa and other hay, to be quite this bad."

USDA expects U.S. production of alfalfa and alfalfa mixtures to total 65 million tons in 2011, down 4% from last year's total. While this year's expected yield of 3.36 tons/acre would be the second highest yield since 2005, it's still down 0.04 tons from last year's figure. On harvested area, USDA is forecasting 19.3 million acres, down 3% from the year-earlier number.

In the other hay category, total U.S. production of 67 million tons, down 14% from 2010's tonnage, is predicted. If realized, it would be the lowest production level since 1993. Other hay yields should average 1.75 tons/acre, down 0.20 ton from in 2010 and the lowest U.S. yield since 1988. Harvested area for other hay is forecast at 38.3 million acres, unchanged from the June forecast, but down 4% from last year's total.

"It all comes back to low yields, low production and low supply," says Diersen. "This is as tight as it (supply) has been since 1988-89."

Hay availability varies widely by region. Supplies should be ample in North and South Dakota, due mostly to record-tying and near-record-tying yields for alfalfa and other hay. On the other hand, supplies are certain to remain extremely tight in the Southern Plains, most notably Texas and Oklahoma, where exceptional to severe drought took a major bite out of this year's production. The report shows alfalfa production levels are down "quite a bit" in Iowa and Wisconsin, Diersen also notes. "There could be some regional supply pressure there, enough to push prices up."

The ag economist expects supplies to tighten still further throughout the fall and winter. With normal consumption, hay supply could dwindle to 15 million tons by the end of the current marketing year, which is May of 2012. That would be the lowest level since 2007.

In turn, the low supply situation will put even more upward pressure on already high prices. Ordinarily, Diersen says, supplies this tight coupled with prices this high would lead livestock producers to ration hay use. This year, though, several factors could limit their options for doing so. These include:

1) The effect of the drought on pasture and range conditions in the Southern Plains. "Producers there will have to start feeding supplemental hay earlier than usual," Diersen notes.
2) The expansion or "intent to expand" the national dairy herd. Overall, hay use by the dairy industry is unlikely to decline as long as dairy producers remain in growth mode.
3) High prices for most other commodities. Livestock producers will have fewer options to substitute other feeds for hay in their rations.

Diersen's bottom line: "The high prices we're seeing now will remain under a lot of pressure for the next eight to 10 months."