With beef prices recently at all-time highs, milk prices staging a comeback and alfalfa supplies below trend levels, commercial hay growers might think this is a good time to expand.
That may be true for some, but not all. Beef producers should be able to afford good hay for the next few years, but the price outlook for milk producers is less rosy. And, while hay acreage is expected to hold steady, a return to normal rainfall would increase production in areas hit by drought in recent years.
A key to the success of any expansion is first identifying markets for the additional product, says Dave Petritz, Purdue University ag economist.
“It seems to me that if you are an alfalfa grower and can identify a steady market, it's probably time to expand,” says Petritz. “But it's foolhardy to jump into the business without a market. You cannot simply say, ‘Grow it and they will come.’”
The beef industry looks like a bright spot for hay sellers in the years ahead.
“The next five years will be very good for beef producers,” predicts ag economist Ron Plain, Kansas State University, “They'll have plenty of money to buy quality hay.”
So far, there are no signs that the beef herd is building, he says. However, the current milk price rally could be short-lived. One economist, eDairy Inc.'s Bill Brooks, is predicting lower average milk prices in coming years.
Due to a change in how the milk price formulas are calculated, Brooks expects Class III milk prices to average about 20-40¢/cwt lower than they have over the past five years.
The marketing atmosphere is determined largely by location. California, the nation's top alfalfa-producing state, has had surplus dry-cow hay for the past 1-1½ years, says Dan Putnam, University of California agronomist. For the past year, alfalfa prices have been the lowest in a decade.
But with beef and dairy prices moving higher, growing demand is expected to clean out inventories within the next three to six months. When supplies move out, prices will likely creep higher, Putnam says.
“But I'd hesitate to say it's time for everyone to expand.”
Following record-high prices a few years ago, California growers increased acreage by 15%, and prices crashed 12-16 months later.
That said, hay prices are definitely on the upswing in most of the country. And today's high soybean prices could help in a couple of ways, at least short-term, says Putnam. First, higher soybean meal prices will increase the value of alfalfa and other high-protein feeds in rations. And second, if alfalfa growers switch to beans, that could reduce the hay supply in some areas.
But markets can be fickle and price outlooks can change quickly. For instance, in parts of the Midwest, alfalfa prices were starting to soar in late August. Then the rains came, pastures improved, and prices settled near $100/ton. If the drought had continued, Petritz says, prices would have been $40-50/ton higher.
He expects prices to linger in the $100/ton range before heading higher early this winter. A short supply of better-quality alfalfa across much of the country means that a typical winter will send demand and prices substantially higher. Next year, if the Great Lakes states have a cold spring followed by a dry summer, Petritz thinks alfalfa prices could shoot to record levels.
Alfalfa growers in the Plains states, however, face growing competition from byproduct feeds. More acres are being planted to cotton, and gin trash is being ground and fed to beef cattle, says USDA hay analyst Steve Hessman, Dodge City, KS.
Still, Hessman thinks improving beef prices will help move stocks out. “I think we'll get the hay pretty well cleaned up this year,” he says.
Longer term, Hessman says that, with normal rainfall in the Great Plains, excess hay supplies could begin to build again, even if alfalfa acreage doesn't increase. Petritz agrees that, long term, weather will be the big deciding factor.
Hay Business Conference Set For Kansas City In March
Presentations by innovative hay growers, university and USDA experts and others will be featured at the 2004 Hay Business Conference & Expo, to be held March 9-10 in Kansas City.
Conducted by Hay & Forage Grower and titled “Strategies For Success,” the event is aimed at cash hay producers. Topics covered will include potential new markets, innovative marketing ideas and upcoming equipment innovations.
In addition to a day-and-a-half program of speakers and panel discussions, there will be a trade show featuring the latest in equipment, technology and services.
The registration fee is $150 before Feb. 15. A second person from the same enterprise can attend for $125. Registrations received after Feb. 15 will be $200.
For more information, log on to www.hayconference.com. The site also has a registration form and details on hotel accommodations. Or, call 952-851-9329 and ask for the hay conference manager.