The expectation that U.S. hay prices will fall off in the year ahead was bolstered by the higher-than-anticipated carryover hay-stock numbers in last week’s USDA Crop Production report. But don’t lay any wagers on how much the decline will be, advises Matt Diersen, ag economist at South Dakota State University.
“Prices will likely drop off from the record-high levels of the 2011-12 marketing year. But how far they’ll drop is still very much an issue.”
All hay stored on farms as of May 1 totaled 21.4 million tons, according to the ag department report. While that’s down 4% from that of a year ago, it’s still considerably higher than the 12-17 million tons some market watchers predicted for carryover stocks just a few weeks ago.
The surprisingly light hay usage nationally over the past few months helps explain the discrepancy between USDA’s stocks tally and what analysts were forecasting. “With a mild winter and early spring in many parts of the country, livestock producers didn’t feed as much hay as they normally would have,” says Diersen. “At the same time, many producers were substituting lower-cost feeds for hay in their rations. That also cut into demand.”
The net result: Hay disappearance between Dec. 1 and May 1 totaled 69.3 million tons. That’s down from nearly 80 million tons for the same period the year previous and the smallest wintertime disappearance total since 1985.
A total of 19% of all stocks nationally are concentrated in just two states – North Dakota and South Dakota, says Diersen. “But there’s also a large area in the center of the country – running from the Southern Plains northward into Kansas and Colorado and then eastward through the Ohio River Valley – where stocks are down considerably compared to those of a year ago. That means there isn’t a lot of leeway in those areas if we get into any kind of production problems this summer.”
An expected shortfall in national hay acreage also needs to be taken into account. If USDA’s March Prospective Plantings report is on target, U.S. hay acreage this year will be the second lowest on record. “If we get trendline yields, we’re still looking at a supply level that’s as low as it’s been since 2007, even with the good May 1 stocks.”
Prospects for bin-busting U.S. wheat and corn crops in 2012 add to the price uncertainty for hay. “Strong prices for grain crops have played a big part in taking hay prices higher,” says Diersen. “If they drop off, as it looks like they will, there will be more pressure for hay prices to move down accordingly.”