Solid clues as to where hay prices are likely headed in 2012 can be found in USDA’s most recentCattle report, says Steve Koontz, ag economist with Colorado State University Extension.

Most telling in the report, released late last month, is its estimate that beef replacement heifers in the U.S. totaled 5.2 million head on Jan. 1, a gain of 1% compared to that of a year earlier. “People are starting to hold back their heifers, indicating that they’re thinking about a little more rebuilding for the long term,” says Koontz. “That’s something we haven’t seen in the industry for awhile. Among other things, that could be a sign that we’ll see strong demand for hay, particularly in the Southern Plains states next winter.”

Near-term, though, Koontz believes that beef-quality hay prices for the 2011-12 marketing year have already peaked. “High hay prices are killing these guys. They’re going to have to start looking at feeding other things. If you drive across Nebraska, you’ll see lots of cattle grazing on cornstalks. I just don’t see how (hay prices) can go any higher right now.”

Understanding what the dairy-related numbers in the report might mean for alfalfa-hay demand and prices in the year ahead is a bit more challenging, he says. Milk-cow numbers, at 9.2 million head, were up 1% from year-earlier figures. But dairy replacements slipped to 4.5 million head, down 1% from Jan. 1, 2011, numbers.

High feed costs and reduced profit margins may be forcing producers to keep cows in the milk string longer than normal, Koontz speculates. As milk production continues to build, milk prices are likely to fall off this spring. “It could be a tough first part of the year for many dairy producers. Many bankers just aren’t willing to lend operating capital. We’re likely to see some liquidations.”

The major question: How long will it take production to level off to where prices track upward again? “Milk prices could be great once we get into July, which would be good for the hay industry,” he says. “But getting to July is going to be tough.”

Koontz’s bottom line: “The beef and dairy industries are doing what they need to do to be more profitable for the long term. That’s good news for forage growers.”