Demand, market conditions and lessened drought could move hay markets in 2014

Jan 4, 2014

The new year of 2014 has been dubbed the year of the Horse in the Chinese calendar, the year of the family farmer by the United Nations, and apparently the year of cheap feed by the markets. The change in feed prices for things like corn and hay between the end of 2012 and the end of 2013 are nothing short of a game changer for the near future of cattle production.

It is hard to say what the future of the hay markets holds and it will be some weeks until USDA releases its Annual Crop Produc tion report, but current market indications and drought trends suggest hay in 2014 will be less expensive than in 2013.

Greater supply/less demand?

Robin Newell, National Alfalfa and Forage Alliance (NAFA) Chair and DuPont Pioneer Forage Business Manager, pointed out in a recent NAFA newsletter that as the price of corn increased in recent years, so too has the number of acres dedicated to corn. In creased uses of corn as well as the demand from the ethanol industry made the demand for corn ground strong.

“Much of the decline in alfalfa acres coincided with competition for acres driven by ethanol production in the U.S., particularly corn in the Midwest. Virtually all states where corn is a major crop experienced a decline in alfalfa acres.”

However, the latter half of 2013 saw the corn markets switch on a record large corn crop. Additionally, the Environmental Protection Agency’s recent decision to reduce the required levels of corn-based ethanol has further increased the domestic availability of corn. So what does that mean for alfalfa and hay acres?

“Now the current corn commodity market has declined from its earlier highs. If the downturn becomes a secular trend reversal in the long-term corn market (which remains to be seen), then it may also lead to a turning point in market signals influencing alfalfa acreage.”

Though Newell did not speculate on what this could do to the market of alfalfa and hay, the trend suggests the potential for increased alfalfa and hay acres planted. Increased acres would mean increased availability, which would mean lower prices.

However, he also discussed a demand element that could curtail the planting of more alfalfa and hay acres despite the potential for increased acres.

“There is a long-term trend in the dairy industry toward feeding more corn silage, for its high productive capacity both in the field and in the milk tank.”

Dairies are the primary consumer of alfalfa and high quality hays and forages. If dairies are feeding less alfalfa and hay and more corn silage, the trend could affect purchased hay and forage markets.

Drought and markets

In 2012 and earlier in 2013, the drought in the West was a primary mover regarding the availability and price of hay. While the drought is still lingering in some parts of the West, most notably in California, Nevada, New Mexico, and the northern parts of Texas and western Oklahoma, Kansas and Nebraska, the prevalence and severity is a far cry different today than a year ago.

As of the Jan. 2 Drought Monitor, 51.76 percent of the contiguous U.S. was in some form of drought (ranging from “abnormally dry” to “exceptional drought”). This compares to the same time last year when 72.78 percent of the country was experiencing some form of drought.

While the difference of roughly 21 percent might not seem like that big a deal, it is in the differences in drought severity that the year-to-year change really shows. Last week, less than 0.4 percent of the country was suffering under the most extreme drought conditions. The same time last year, that number was 6.75 percent. The next most severe level of drought, “extreme drought,” stood at 3.58 percent of the country, compared to last year’s level of 14.56 percent.

Though more than just the existence or not of harsh drought conditions affect hay and forage prices, the lessening drought has coincided with decreased hay prices. The most recent Agricultural Prices report, released last Monday, showed an excellent situation for hay prices. Across 27 surveyed states, the average price for all hay (alfalfa hay and other hay) declined 11.1 percent at $168 per ton.

Almost across the board, all-hay prices have declined. The savings on hay were anywhere from minuscule at down 0.1 percent—Arizona with $190/ ton hay for December—to down by a third of December, 2012, prices, as was the case for both Nebraska and South Dakota at an average of $143/ton and $139/ton, respectively.

On the other hand, only four out of the surveyed states—Kentucky, New York, Oklahoma, and Pennsylvania—saw higher average December all-hay prices in 2013 versus 2012. Kentucky was up 12.4 percent at an average of $127/ ton, New York increased 7.2 percent with $164/ton, Oklahoma increased the most with 17.7 percent at $160/ton, and Pennsylvania increased 10.8 percent with $184/ton.

When the scope is narrowed to non-alfalfa hay— listed as “other hay”—the year-to-year price decline stood at 8.5 percent with the national average being $130/ton, down from $142/ ton in 2012. — Kerry Halladay, WLJ Editor