All-hay and alfalfa prices are likely to soften a tad this year from record-setting levels. But they’ll stay plenty high by historical standards, according to hay market watchers like Matt Diersen, ag economist with South Dakota State University Extension.

“It’s definitely going to be another interesting year for hay markets,” Diersen says.

Hay acreage is expected to rebound, but not enough to balance supply and demand. According to USDA’s March 31 Prospective Plantings report, U.S. hay growers intend to harvest 57.3 million acres of all hay in 2012. That’s an increase of 1.7 million acres, or 3%, compared to the total acres harvested last year.

Predictably, most of the acreage increases will be in states where production was severely crimped by last year’s mega-drought. Texas is anticipating a bump of 700,000 acres in 2012 compared to last year’s number, while Oklahoma expects an increase of 400,000 acres. States in the Southeastern U.S. are looking for harvested hay acres to increase from 2% to 15% over those harvested last year.

Keep this year’s anticipated acreage hike in perspective, suggests Katelyn McCullock, dairy and forage economist with the Livestock Marketing Information Center. “At just over 57 million acres, it’s still pretty low compared to historical norms. For the past decade or so, (U.S. harvested acreage) has been closer to or above 60 million acres.”

Couple the potential for lower acreage and/or production with historically tight May 1 hay stocks, says McCullock, and the stage is set for continued high prices.

“If we get normal weather, we’ll still be looking at average prices in 2012-13 to be among the three highest on record,” she says.

Sagging milk prices could put downward pressure on alfalfa prices in some regions of the country as more dairy producers seek substitute ration ingredients to lower operating costs.

“Lower dairy profitability will be a big factor keeping alfalfa prices in check,” says Diersen.

On the flip side, a continuing shortfall in alfalfa production should buoy prices to some degree in the coming year – acreages of new alfalfa seedings nationwide were down 8% last year compared to those in 2010.

“If nothing else, alfalfa prices will have to stay somewhat high to compete with corn, soybean and other crop prices,” says Diersen. “The lower acreage creates a floor that will be supportive of prices at a higher-than-average level. The prices just won’t be as high as they were last year.”