Hay Outlook: Milk and Grain Prices Could Impact Hay Demand in 2019

Declining hay acres and fewer dairy cattle might have an impact on what direction hay prices go. ( Wyatt Bechtel )

Hay markets can be difficult to project heading into any year, and 2019 might have some of the most complex dynamics to consider for hay pricing and demand. Weather will always play a role in regional markets, while competitive demand from dairy and beef cattle herds also play a role. Comparative pricing of other feedstuffs need to be considered and with lower commodity pricing there might be advantages to feeding more grain in livestock diets.

Taking a look back at 2018 hay prices rose around much of the country. According USDA’s latest Agriculture Prices Report released in November, “All Hay” prices for during October 2018 averaged $162/ton, up $21/ton from the previous time last year. Alfalfa saw an even wider swing in prices with $178/ton being the average nationwide in 2018, while the October price last year was sharply lower at $153/ton. The “Other Hay” price sits at $132/ton for this year, a $10/ton increase from last year.

Looking Back and Forward

Alfalfa hay acreage has been on a decline for the past few decades. Carl Zulauf, economist with Ohio State University, has been analyzing hay production trends for several years and he shared this trend in a recent study of hay production for the last 100 years.

For instance, the report shows alfalfa acres have fallen by 37% since 1979, while non-alfalfa acres have increased 12%. That resulted in alfalfa’s share of hay acres declining from 45% to 31%.

Despite that fall off for alfalfa, Zulauf notes that during the 1980s farming crisis there was a slight uptick in total hay acreage, largely because hay was more profitable to produce. “We increased total acres by 3.5 million between 1980 and 1986. That is a very stark contrast to what is going on this time,” Zulauf says.

During the latest downturn in agriculture looking at a near market top in 2013 for most commodities to the current lows, there has been a drop in hay acres of 2.8 million acres according to USDA data.

“This very different response than in the 1980s, when we also had a large decline in grain prices, is worth pointing out and considering from a hay market and crop production perspective,” Zulauf says.

It isn’t immediately clear what all has led to the downturn in hay acreage, but price ratios probably are part of the explanation.  Zulauf says the price ratio of hay to corn went up 75% from 1980 to 1986, showing a clear incentive to expand. However, since 2013 the ratio has only increased 10%.

“I don't have a feeling for what is causing the different change in the price ratios, but it is not likely something being caused by temporary factors since changes over several years in both periods are being compared,” Zulauf says.

Those types of temporary factors would primarily be drought or high priced commodity markets.

Milk Market Impact

Dairy cattle account for a large part of hay demand with quality alfalfa fed in lactating cow diets, and grass hay being fed to non-lactating cattle.

In areas of the country where there are large pockets of dairies, hay grown locally plays a crucial role. Unfortunately with another year of low milk prices there have been a number of small and mid-size farms leaving the dairy business. This leaves potential challenges for hay growers who sell regionally.

Northeastern states like New York have seen dairies stop milking cows and this could be a big influence on regional hay markets, says Joe Lawrence, dairy forage specialist for Cornell University.

“There are still a lot of small dairy farms that are talking about exiting the business in the next six to 12 months. Traditionally those smaller dairies, as they have sold the cows, a lot of them have gone into selling hay,” Lawrence says.

Should those farmers who sell their cows and keep their land continue to put up hay, there could potentially be a localized surplus of hay on the market. “Given that commodity prices aren’t great, they won’t be encouraged to go into corn or soybeans,” Lawrence adds, so hay could be the best option.

This potential problem of hay oversupplies might not just be unique to the Northeast. It could impact other areas like Wisconsin where a large number of dairies have been shuttered recently.