Diesel fuel prices have backed off from last fall's record-breaking levels. But the effects of the big price surge on hay transportation and marketing could linger.
“It's really a mess out there,” says Don Kieffer, executive director of the National Hay Association. “A lot of our members really have to scramble to line up freight. Everything has turned upside down.”
Tom Creech of Creech Hay, Inc., Lexington, KY, speculates that higher fuel costs forced many owner-operators to park their rigs and take jobs driving for larger freight companies.
“There just aren't as many trucks around willing to haul a load of hay as there were before,” says Creech.
He sells hay produced in the Northwest to 100 or so small horse farms in the Lexington area. “We're spending a lot more of our time on the phone trying to line up truckers.”
The rapid rate at which fuel prices rose during one stretch last fall led Creech to make basic changes in how he conducts day-to-day operations. During the height of the price run-up, some truckers would show up with a load at Creech's warehouse and demand to be paid a fuel surcharge.
“The price they were paying for fuel on the road was going up wildly between the time they left out there and arrived here (typically a three-day run),” he says. “They wanted to try to offset those increases by tacking on a surcharge. Our position was that the terms had been set before they left and we shouldn't have to pay it. It led to a lot of arguments.”
Now when Creech contacts dispatchers to arrange shipments, he stresses that he's interested in discussing flat rates only — no surcharges.
“As soon as we hang up, we fax them a sheet spelling out the terms we've just agreed to,” he explains. “We have them sign it and fax it back to us before the truck leaves. You have to spend more time now making sure you've dotted the Is and crossed the Ts.”
Barb Kinnan, executive director of the Nebraska Alfalfa Marketing Association, says freight-related problems are leading more hay producers to consider buying their own trucks.
“They see it as a way to get a little more control over their operations,” she says. “It's a very competitive business. You can't run the risk of losing customers because you're not able to line up hauling when you need it.”
That kind of thinking led John Granstrom and his son, J.J., to set up a trucking business as a companion enterprise to their haying operation two years ago. The Granstroms grow hay on 4,500 acres near Holstein, NE. Most of their hay is marketed to dairy producers in East Coast states.
“It was getting harder and harder to find truckers willing to haul hay out that way,” says John Granstrom. “When you could find them, they usually charged a premium. We finally decided we'd be better off doing it ourselves.”
With fuel costs skyrocketing last fall, the Granstroms, who now keep three trucks on the road, reluctantly began tacking fuel surcharges onto their billings. To help customers absorb the higher freight costs, they adjusted hay prices downward.
“There has to be some give and take,” says Granstrom. “Our customers are buying fuel, too. They understand that a lot of things related to fuel prices are beyond our control. For the most part, they're willing to pay a little more to help offset higher freight costs. They just don't want to get gouged.”
Ron Tombaugh, another grower hauling his own product, says his customers have also accepted higher costs related to fuel-price increases.
“Sometimes you have a buyer who's not as accommodating,” says Tombaugh, who maintains four trucks to haul hay and straw grown on 6,000 owned and rented acres near Streatosr, IL. Dairy producers in the East make up the lion's share of his customer base.
“But I think most of them understand that if they're happy with the quality of product and the service a hay producer is delivering, it's in their best interest to do what they can to help keep that producer in business for another year. A long-term business relationship has to be a win-win for everyone involved.”
Others, though, wonder if current volatility in transportation could lead to fundamental changes in how hay is marketed nationally.
“Our customers have gotten used to hay coming out of the Northwest,” says Kentuckian Tom Creech. “But there could be an upper limit on how much they're able and willing to pay for hay. If prices go up too much because of higher freight costs, it could increase the demand for Eastern hay around here.”
That may already be happening in some areas, says Purdue University market analyst Dave Petritz. He notes that prices at tested hay auctions in Indiana this past fall were running significantly above year-earlier levels, even though local hay was plentiful.
“Dairy producers are starting to question whether they really need to go very far west to find the hay they need,” he says. “They're starting to ask themselves, ‘What can I get closer to home so I don't have to pay those freight costs?’”
Dairy producers are also rethinking how much hay they need to incorporate into rations.
“They look around and see that corn and soybeans are pretty cheap right now,” says Petritz. “That has many of them rethinking the whole ration structure. It all boils down to making the ration work at the lowest cost possible.”