December 1, 2016

2017 Outlook: Hay Prices Rely on Basic Economics

 |  By: Anna-Lisa Laca

If you’re a dairy farmer, the only thing keeping your business afloat may be the incredibly forgiving price of feed. Grains and alfalfa have been lower than average over the last several months. Barring a weather catastrophe next spring, analysts expect 2017 hay prices to remain in the same range they’ve been this year. Immense supply and lower than average demand will continue to put price pressure on hay, excluding premium alfalfa.

The June 2016 acreage report from USDA indicated 56.1 million acres of hay would be harvested this year. That jump in hay acreage, combined with near perfect growing conditions in most of the U.S., led to barns full of hay. Although this poses an upside for dairy farmers and hay tarp suppliers, it’s bad news for hay growers.

Use the slider above to compare where alfalfa and other types of hay are grown in the U.S.

“We have an incredible amount of hay,” says Dan Undersander with the University of Wisconsin forage team. “We had an above-average carryover, and we had tremendous yields. The supply is good.”

According to Western hay market expert Seth Hoyt of the Hoyt Report, there’s sufficient carryover in the West as well, with Idaho leading the pack. Evidence of this carryover appeared in the latest USDA hay price report, which quoted Idaho having one of the lowest prices in the seven Western states for “supreme” quality hay.

The huge gap in price between “supreme” quality hay and low quality hay, a trend that really picked up steam last year, will likely continue, according to Undersander.

“Quality hay has a good premium and that is likely to stay,” he says. “There will be opportunity to bring some hay in from the West, but of course the farther you go, the higher the transportation costs become.”

The drought the Eastern U.S. experienced this summer will help chew through the supply, but farmers in places like NY are also bringing in hay from Canada, according to Undersander. In addition, he says a long, cold winter has the potential to help reduce stocks as well.

Fortunately for livestock producers, corn prices have been down, too. However, Undersander warns that low corn prices throughout the winter won’t likely make the hay price go much lower.

“Usually when corn prices are down we put up more corn silage and that makes hay prices down,” he explains. “This year people didn’t put up as much corn silage because bunks were full of haylage.”

Undersander says the corn silage that was put up this year in the Midwest wasn’t as high quality as it should be, so farmers will feed more hay to make up for the lost nutrients.

Hay exports to China have increased compared to last year but fell sharply in September, Hoyt reports. According to the U.S. Department of Commerce, hay exports to China were down 27% from August, but are still 51% higher than September a year prior.  Hoyt credits the decline to the Chinese not being willing to pay exporters full price because of heavy shipments from June through August.

“According to sources, dairies in China were losing money due to low milk prices and were buying lower priced local hay,” he says.

Could the price bounce back?

“A hard winter will increase use as will the number of cows we feed through the winter,” Undersander says. “If we have an average to good growing season next year, prices will stay about where they are now.”

Barring a significant weather event next spring, demand won’t be able to outpace supply, and prices will remain relatively stagnant.