Nationwide hay production was down slightly last year, but reduced demand and rising stocks have softened prices.

Further price reductions can be expected in the years ahead unless production is brought more in line with demand.

In mid-December, USDA reported the average price of alfalfa hay at $81.40/ton. That was 20% lower than the year-earlier price and the lowest since 1992.

Prices have increased from summer in only two general areas - from the Southern Plains across the Southeast, and in the Northeast - where production was reduced by inclement weather.

In most other areas, such as the Northern Plains and the West, where production and supplies increased in 1998, prices have declined.

Details of the 1998 hay crop and Dec. 1 hay stocks were part of USDA's January Crop Production Report (available at the following Web site: nass).

USDA reported hay production at 151 million tons, down slightly from 1997 levels. Acreage declined slightly, while yield increased. South Dakota was the largest hay-producing state, followed by California, Kansas, Missouri and Nebraska. Because of severe drought in Texas, that state dropped from No. 1 in 1997 to No. 7 in '98.

Alfalfa production totaled 82 million tons in 1998, 4% more than in '97. This is the highest production since 1995 and the fourth highest in the past 10 years. While acreage remained unchanged, yields averaged 3.47 tons/acre, a 5% increase from the previous year's amount.

Production of "other hay" - essentially all hay other than alfalfa - totaled 69.3 million tons, 5% less than in 1997. Reduced acreage and yield both contributed to the decline. The production decline in Texas contributed 87% of the national decline.

Production was up in 29 states, but not enough to offset declines in the remaining states.

Despite the drop in production, hay stocks have increased. As of Dec. 1, U.S. stocks totaled 112 million tons, up 9% from the amount in storage on Dec. 1, 1997. These are the largest stocks in recent years. Stocks increased in 33 of the 48 states.

Last year's mild winter allowed grazing through mid-December in many areas. Drought, extending from Texas and Oklahoma through Georgia and Florida, reduced production and stocks in those states. But big increases in stocks occurred in the Corn Belt and most Western states. Hay stocks more than doubled in California.

The Dec. 1 stocks report provides a mid-year perspective on supplies available for the remaining winter feeding period. With stocks up in 33 states, it appears the supply of hay will be more than adequate to meet late-winter needs. Whether stocks on May 1 will be larger than on May 1, 1998, will depend largely on the severity of winter weather and when spring grazing begins.

USDA began to collect information on new seedings of alfalfa and alfalfa mixtures in 1997. Producers seeded 3.5 million acres of alfalfa during 1998, 5% less than in 1997. Increases were reported in several Western states as well as in the Northern Plains and the Northeast. However, the increases do not appear to be tied to the prices that existed during 1998.

Hay prices have declined across the nation. Prices are higher in Texas and Oklahoma due to the shortage of forages. They've also increased from summer levels in New York and Pennsylvania, where alfalfa production was down last year. Prices are above year-ago levels in New York, but still trail year-ago levels in Pennsylvania.

The growing supplies and resulting price declines are a caution flag for forage producers. Production in many locations exceeds use with the result being growing stocks.

In two states - North and South Dakota - Dec. 1 stocks were actually larger than 1998 production. This illustrates the magnitude of increasing carryover supplies of hay, which will lead to further price declines.

Unless weather significantly reduces production, stocks are expected to continue to build, placing further pressure on prices. Furthermore, the growing supply of grain and oilseeds will become increased competition for forages in livestock rations.

While producers of high-quality alfalfa will likely continue to enjoy premium prices, the size of the premiums will likely decline.

Hay growers need to carefully assess the potential market for increased quantities of their product. Unless hay production can become more in line with the future demand for hay, the profit potential from hay will likely become increasingly limited.