An upward pressure on hay prices is likely until mid-June and beyond, due largely to extremely low production in 2011, the lowest Dec. 1 hay stocks in 23 years and an ongoing shortfall in alfalfa seedings, say hay marketing experts.
“Prices will hold closer to this year’s levels once we get into the 2012 new crop than to the price levels we saw in 2010,” says South Dakota State University ag economist Matt Diersen.
In its January Crop Production report, USDA estimated 2011 national alfalfa production at 65.3 million tons, up 1% from its Oct. 1 estimate but 4% less than the amount produced in 2010. It was the lowest U.S. alfalfa production total since 1959.
For other hay, USDA estimated 2011 production at 65.8 million tons, down 2% from the Oct. 1 forecast and 15% below the 2010 figure. The last year that other-hay production in the U.S. was that low was 1990.
“Production, or in this case lack of production, does a lot to drive prices,” says Diersen.
USDA’s Crop Production 2011 Summary, also released in January, showed alfalfa seedings totaled just 2.3 million acres, down 9% from the 2010 figure and an all-time record low, he notes. Compared to the year-earlier seedings, the sharpest drops were in Minnesota and Iowa. Seedings were down 50,000 acres in both states.
“With the acres involved, the decline in those two states alone is enough to cause a significant decline in alfalfa production nationally,” says Diersen, who speculates that most of the acres that went out of alfalfa were planted to corn and soybeans.
“That should lead to be better prices in Wisconsin, South Dakota and Nebraska since buyers who would have sourced hay in Minnesota and Iowa will now have to look elsewhere.”
USDA also estimated Dec. 1 all-hay stocks at 90.7 million tons, down 11% from the year-earlier number and the lowest hay stocks on that date since 1988. Diersen notes that, over the last decade or so, U.S. hay usage from Dec. 1 through May 1 has totaled around 80 million tons.
If the trend holds this year, there will be only about 10 million tons of hay on hand nationally between May 1 and when the new crop starts coming in.
“Livestock producers will need to find substitutes to stretch the hay supply,” he says. “For hay buyers the message is clear: You can’t count on prices backing off once we get into the new crop year.”
University of Georgia Extension ag economist Curt Lacy says high prices for cotton, peanuts and corn make it unlikely that overall hay acres will increase in the Southeastern U.S. this year.
“There really isn’t any kind of incentive to take land out of any other crop and put it into hay production right now,” he says. “As a hay buyer or hay seller, you should plan on prices being at least where they are now or even higher as we get closer to the growing season.”
Continued dry weather will also help bolster demand for hay, says Lacy. “Most of the weather forecasts I’ve seen are calling for the drought to continue for at least the next four to six months. If it continues to stay dry, demand is going to stay high and prices will respond accordingly.”
The hay marketplace is starting to look like the corn marketplace, according to Steve Koontz, who’s an ag economist at Colorado State University.
“It’s going to take two or three good years to get supply to the point where we’ll see historic norms on prices,” he points out. “The market is going to be high and tight for awhile.”
One factor that could cause beef-hay prices to back off in 2012 is the major liquidation of cattle herds, particularly in Texas and Oklahoma, brought about by the 2011 drought.
“Because of that, demand for beef-cow hay has come off some,” says Koontz. “If we have a decent spring with some good rains in the Southern U.S., people there will take a break from buying this high-priced hay.”