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But it’s still a volatile, weather market
A combination of tight stocks coming out of a long winter, likely low harvested acreage and the potential for a demand falloff later in the year means dairy producers relying on purchased hay will be in for another wild ride in the year ahead.
"Volatility will be the watchword for prices in 2013," sums up Steve Koontz, agricultural economist with Colorado State University Extension.
Concerns about production and supplies are likely to keep a floor under hay prices early on in the growing season. USDA’s March Prospective Plantings report showed U.S. growers intend to harvest hay on 56.4 million acres of hay in 2013.
While that’s up marginally from a year ago, it’s still 6% lower than in 2010. Among major milk-producing states, USDA looks for hay acres to decrease by 6% in California, 5% in Wisconsin and 1% in Idaho, New York and Michigan.
Specifically for alfalfa, nationwide production could rebound slightly. According to USDA’s January Crop Production report, seedings of alfalfa and alfalfa mixtures increased in 2012 by 68,000 acres—the first time that’s happened in a decade.
"An increase is good news," says Katelyn McCullock, dairy and forage economist with the Livestock Marketing Information Center in Denver, Colo. "But it’s probably not enough of an increase to take prices down."
Twists and turns in the weather during the growing season will play a big role in determining to what extent acreage shortfalls affect forage supplies and prices. On the upside, many areas of the eastern Corn Belt received enough snow this past winter to replenish soil moisture levels severely depleted by last year’s drought. That should give yields a boost, taking at least some pressure off supplies and prices in some local markets.
On the flip side, though, dry conditions remain a major concern in other parts of the country, including the northern and central Plains and the Southwest. "In many areas, they just don’t have the moisture that would lead me to believe we’re going to be seeing a large amount of hay stacked in barns everywhere by the end of the summer," says Colorado State’s Koontz.
Bottom line, says Matt Diersen, a South Dakota State University Extension ag economist, is that even with a return to a trend-line national average hay yield of 2.4 tons per acre this year, acreage will likely be low enough to prevent any significant, supply-side improvement.
"It (supply) might be a little better than it was last year," he says. "But it won’t be a return to normal by any means."
Given the supply situation, producers in good financial position might want to consider buying hay on an as-needed basis through the next several months, holding off on building up hay inventories until the fall grain harvest is complete, Diersen says.
The rationale: If early predictions for bin-busting U.S. grain crops this year prove to be on target, demand for hay could drop off in the fourth quarter as livestock producers replace alfalfa in their rations with lower cost feed ingredients.
"Either way, it’s a gamble," he says. "If you buy ahead, you run the risk of paying top dollar because of the tight supply. Waiting, though, puts you at risk of having to pay more later on if supplies don’t loosen up and prices go even higher."
In such a volatile marketplace, maintaining good relationships with hay suppliers will be crucial, Diersen adds.
"Do whatever you can to widen the network of suppliers you’re dealing with," he says. "If you have a preferred supplier, stay in touch with them regularly to make sure they’re going to be able to supply what you need."
Steve Koontz offers similar advice. "In this kind of climate, the single most important thing you can do is to avoid going into panic mode. It’s unlikely that we’ll go through the entire summer without some kind of weather development moving prices one way or the other.
"Monitor the markets closely, and look for opportunities to buy when prices dip," he says. "Above all else, keep lines of communication open with your lender so that you can take advantage of those opportunities as they come along."