While no one is expecting a repeat of the record-high levels of 2008, hay prices may be higher, possibly even significantly higher, in 2011 than they were a year ago, market watchers say.

A tightening supply situation is the key factor. According to USDA’s March 31 Prospective Plantings report, U.S. producers intend to harvest hay on 59 million acres this year, 1% fewer than in 2010.

“That would take overall production down a couple of million tons compared to last year,” says Matt Diersen, ag economist with South Dakota State University Extension. “That would certainly be enough to get hay prices moving upward.”

A major surprise in the March report, says Diersen, is that hay acreage wasn’t down even more given increasing prices of corn, cotton and other crops. He attributes at least part of that to the fact that alfalfa prices nationwide were up nearly 20% in March compared to those of a year earlier.

“The price likely kept some acres in alfalfa production that might have otherwise gone to other crops,” he says.

Prospective Plantings report numbers, gathered in late February and early March, are likely to change once producers get around to putting forage crops in this spring, cautions Curt Lacy, livestock economist with University of Georgia Extension.

Corn prices rose sharply immediately after the report was released, he notes, which could draw more acres away from hay and into corn or other grains.

“People need to keep in mind that the March report is preliminary. Growers could still decide that the higher grain prices are too tempting to pass up. So instead of a 1% reduction in hay acres, we could actually see a 2-3% reduction,” he says.

Higher corn prices will draw more hay acres out of production than were indicated by USDA’s March assessment, believes University of Wisconsin Extension educator Ken Barnett, who tracks Midwestern hay and straw prices for his weekly report.

Before seeing the March numbers, Barnett was expecting alfalfa prices in the Midwest to rise roughly 5% this year. Now he believes a price bump of 5-10% is more likely.

“More ground is going to have to go into corn. The big question is: Where is that ground going to come from? In the Midwest, anyway, it’s unlikely that much of it will come out of wheat. So that leaves alfalfa.”

Hay stocks were also already tight heading into the winter feeding season that just ended. In its January Crop Production report, USDA estimated total U.S. hay stocks as of Dec. 1, 2010, at 102 million tons, down 5% from the year-earlier total.

May hay stocks typically tend to be about 20% of Dec. 1 stocks, South Dakota State’s Diersen points out. If that trend holds, this year’s May 1 stocks would be somewhere around 20.5 million tons, the lowest since 2007. What’s more, if the high usage that led to the low Dec. 1 stocks level continued this winter, he believes May 1 stocks could be as low 18 million tons.

“Anything below that would suggest a serious shortage exists, and potential supply problems would be in place for the 2011 crop,” he points out.

As always, Diersen adds, weather will likely play a major role in determining if there’s a new-crop hay-price rally this spring and just how robust such a rally might be.

“Given the likely tight supply situation, if we have any kind of production delay for the new crop, we could see some wild price fluctuations that would favor those on the selling side,” he says.