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Remember 2008: The stark realities of high prices

Brad Nelson Published on 31 January 2011

Way back when (late ‘60s, I believe), there was a movement afoot to hold potatoes off the market to address the abysmally low prices of the year.

One of the ag econ professors at the college I was attending at the time noted that a scoop of white rice beside his roast beef, with a square of butter on it and then covered with gravy, would do the roast beef dinner the same justice as would a scoop of mashed potatoes.

He noted that a strike only works when there is no substitute for whatever it is that is being held off the market.

An inflated price can and has had the same effect of a strike on the supply and price of commodities.

When fluid milk reaches a certain price, my household, and apparently most other households in the country, cuts back on the use of real fresh milk from the store.

Fresh milk is used for a number of things in the kitchen, out of convenience. When the price is perceived as too high, consumers refuse to pay that price for the product and either cut back on usage or substitute something less expensive where feasible, as in recipes that call for milk.

I have yet to find any form of powdered milk that is palatable when reconstituted for drinking. I have also yet to find any recipe that reconstituted powdered milk will not work in, without any difference in the taste of the finished product. When the price goes up, the consumption goes down, which causes a surplus, which lowers the price.

To consider the boom and bust of hay prices for the 2008 crop year, we must not forget that most commodities had the same problem in that time frame.

We can waste a lot of time pointing fingers in enough directions to properly allocate the blame, but that would belabor the point. Hay simply got too expensive, and the end user balked – and the industry may never be quite the same again.

Corn and wheat and potatoes were being contracted for record-high prices at the start of the 2008 crop year. (One of my associates stated that for $200 corn he would not grow a single stick of hay.) Good established hay fields were being ploughed out after first cutting to plant corn.

Wheat and potatoes had already taken a high toll on the acres of alfalfa hay in the Pacific Northwest. The big scare of a hay shortage spread like wildfire.

The scene in the export market was that the dealers the domestic exporters worked with literally screamed that they must have hay, no matter what it cost.

This was at a time that the Japanese dairy industry had already been in a depression for a number of years and showed no real signs of recovery. There was a larger-than- average carry-over of 2007 crop hay at this time.

With the panic to secure 2008 hay, there was a rush to buy up and get on the boats to Japan all the 2007 crop that fit the bill. This added to the buying spree, which ran up the price for new hay of the 2008 crop year.

In one instance, two buyers for the same exporter were separately bidding on the same stack of hay and effectively ran the price up by $50 per ton at least on that stack. (I wonder how they explained that one.)

About the end of the summer of 2008, most of the carry-over 2007 hay had been shipped. Orders for new- crop hay were few and far between. The weather in Australia had been kind to the oat hay growers and there was a good crop.

Now the Australians, being good businessmen, observed the situation in the western United States, and priced their oat hay so they could sell it all without getting into the panic of “the hay shortage” of 2008.

The dairy industry as a whole in Japan refused to pay what amounted to double or more of the 2007 price. They simply went back to dairying as they had before the exporters in the United States started shipping alfalfa and timothy hay to them.

Alfalfa hay is used in Japan as a protein supplement. Timothy hay is used as a coarse binder to make the Japanese domestic byproducts which are used heavily in dairy rations manageable. Oat hay works close enough to timothy, especially when the price is a fraction of that of timothy.

Urea, used judiciously, works as well in a Japanese ruminant as it does in an American ruminant to give the animal the needed nitrogen to make the proteins needed for growth and milk production.

Add to the formula that most Japanese dairymen were still on, the program of “keep the cows alive until the price of milk comes up,” and suddenly high-priced alfalfa and timothy hays from the United States became an expensive luxury rather than a necessity for the dairy industry.

This left a huge inventory of hay that had been purchased for a price that could never be recovered. Unfortunately, the domestic dairy hay prices and the domestic feed-store prices followed the same insane spiral. Milk prices had started to heal, then rose with the rest of the “bubble” that burst with the rest of the world economy in the great recession of 2008.

The crash of milk prices, coupled with the doubling of hay prices, spelled out the death knell for a number of domestic dairies.

About this time, pet horses whose owners were on unemployment and could not afford the doubled price of hay were simply turned loose in the woods to fend for themselves the best they could. It sounds tragic, but after having no luck selling, and then having no luck giving away the horse, well, the kids’ need for food comes first.

Going into the 2011 hay crop year, there are some of the same things at work as at the start of the 2008 year. The fact remains, and may be easier to remember since 2008 was not that long ago, that there is a price threshold at which the end user is unable to pay.

It makes no difference what the costs of production are, or what the neighbor got for his hay. If the end user can’t pay the price, then the party you sold the hay to can’t pay you.

Nothing is cheap but the dollar. At the Washington State Hay Growers conference some time back, one of the speakers representing one of the exporters made the comment that a weak dollar makes everything we export a fire sale buy for those buying from us. He then added that it seemed that the current administration was going to have no problem keeping the dollar weak.

When prices go up, consumption goes down which creates a surplus, which lowers the price. When prices go wild, either up or down, it will harm any industry. Once the dairy industry learns how to get by on less hay because the price is too high, they may never return to the previous levels of consumption.

With a modicum of stability in the economy, everyone can make a good living. Unfortunately, some of those in our economy create instability because they know how to profit from it. As we continue to unravel the travesty of 2008, more and more of those creating instability and profiting from it find themselves living in the “crowbar hotel” (prison).

The real value of hay is known only after the last check received for it clears the bank.  FG