Friday, September 30, 2011

Low Hay Acres, High Hay Prices

For your information:

Hold on to your hats. The most recent USDA estimate for hay acreage to be harvested in the U.S. during 2011 has likely set the stage for a wild, upward ride in hay prices for the rest of the year.

U.S. growers plan to harvest 57.6 million all-hay acres in 2011, down 4% from 2010, according to the June 30 Acreage report. Harvested acres are expected to be below or equal to last year's figures for most states in the Corn Belt, Great Plains, Pacific Northwest and Rocky Mountain regions, the ag department adds. Record-low harvested acreages are expected in Iowa, Nebraska, Minnesota, Maine, Pennsylvania and Wisconsin. For alfalfa and alfalfa mixtures, USDA expects a harvested area of 19.3 million acres in 2011, down 3% from that of last year.

Throughout spring, most market watchers had been predicting a large drop in hay acres and that growers would switch to corn, wheat and other crops to capitalize on projected high commodity prices. In its March 31 Prospective Plantings report, USDA had forecast all-hay production at 59 million acres.

"That would have been a drop of about 1% from 2010," says University of Wisconsin Extension educator Ken Barnett, who compiles the Weekly Hay Market Demand and Price Report for the Upper Midwest. "Given all the reports we were hearing and reading through the winter about farmers taking land out of hay to plant corn and other crops, I don't think many people really believed that number."

Even so, the size of the spread between the March and June acreage numbers surprised many analysts. "Shocking is the only word I can think of to describe it," says Matt Diersen, ag economist at South Dakota State University Extension. "It's a big, big drop."

That virtually ensures dramatically lower U.S. hay production overall. Diersen points out that, if this year's yields meet the 10-year average of 2.43 tons/acre, national all-hay production would total 140 million tons, a 7-million-ton drop from production in 2010 and the lowest production since 1988.

A relatively low inventory of hay coming out of the winter promises to tighten supplies even more. Hay stocks on May 1 of this year totaled 22 million tons. "That's not crazy tight like it was in 2007 when May 1 stocks were under 15 million tons," he says. "But when you couple it with the lower production, it will put a lot of pressure on the supply."

At the same time, demand is likely to be stronger than normal in some areas of the country. Severe droughts in Texas, Oklahoma and other parts of the Southern Plains have burned up pastures, forcing livestock producers to feed hay much earlier in the year than normal. "It's really going to put a stress on supply throughout the marketing year, which will only push prices higher," says Diersen.

U.S. hay prices as of late May were already at an all-time high, Diersen adds. "It's similar to 2008, when hay prices were high at the start of the marketing year, then stayed high for the rest of the summer."

His bottom line on the Acreage report: "It's good news for someone with hay to sell. It's very bad news for anybody on the buyer's side."

  by Rick Mooney, Editor, eHay


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