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Hay Market Insights: Government shutdown a barrier to some market information

Progressive Forage Editor Dave Natzke Published on 10 January 2019

With some USDA employees furloughed and offices closed, several regular statistical and market reports affecting hay and forage producers have been cancelled or delayed. Here’s an update on what we know.

A look at the Northwest

Among hay market information sources that are available, the latest Hay Market Snapshot from Northwest Farm Credit Services suggests western U.S. alfalfa and timothy producers will be profitable over the next 12 months. Supply conditions should support hay prices, as abnormally wet conditions across much of the U.S. – coupled with drought in Australia and Europe – will provide tailwinds to hay sales.

Looking at states within the region, preliminary 2018 production estimates issued late last fall reported Montana hay producers saw the third-largest alfalfa crop and the second-largest grass hay crop on record. Extended snow cover over the 2017-18 winter and a wet spring provided much-needed relief after the drought in 2017. However, first cuttings were damaged by untimely rains, leading to a large inventory of low-quality hay.

While monthly data isn’t available, weekly reports from the USDA’s Agricultural Market Service (AMS) suggest Supreme quality hay prices decreased 3 percent year over year in Montana. In contrast, Fair quality hay prices decreased 24 percent. As 2018 came to a close, Good grass hay in round bales was trading at around $125 per ton. Low-quality alfalfa was trading at around $100 per ton; Good alfalfa traded between $110 and $140 per ton; and Supreme quality alfalfa was trading at around $180 per ton.

In the Washington-Oregon Columbia Basin, price differentials between high- and low-quality hay were narrow, with favorable harvest conditions reducing the supply of low-quality hay and lending support to prices.

Year-over-year Fair and Good quality alfalfa prices increased 20 and 12 percent, respectively, and averaged $165 to $175 per ton. USDA AMS reports put Premium hay prices around $200 per ton, unchanged from a year earlier. The stable prices for high-end hay indicate supplies remain balanced, despite vulnerability from trade disruptions.

Supplies of low-quality hay in the Oregon-California Klamath Basin were tight, with year-over-year prices up 45 percent – to as high as $185 per ton. California-bound high-quality hay was bringing between $200 and $225 per ton.

Preliminary production estimates issued late last autumn indicated Idaho surpassed California as the largest U.S. alfalfa-producing state, as California production fell to the second-lowest level since 1948.

With two new hay presses beginning operation in Idaho last year, higher demand for hay volumes processed for exports helped offset a weaker dairy economy. That added competition has benefited hay producers, with inventories traditionally sold to brokers and dairies now being secured by the area’s hay processors.

Export numbers delayed

The export market continues to be impacted by ongoing trade and tariff wars with China. The November U.S. hay export report, scheduled for early January, has not been released.

On the brighter side, the Northwest Farm Credit Services report says anecdotal reports suggest the Chinese appetite for hay is building as supplies tighten. If these reports are true and a new trade agreement can be negotiated, exports could provide momentum in 2019.

Consolidation within the Chinese dairy industry is leading to some decline in cow numbers there, and a shrinking dairy industry in Japan is softening hay demand. However, limited supplies of oaten hay will provide tailwinds to U.S. and Canadian exports to Japan until new crops are available in 2019.

On the monetary front, higher interest rates are in a battle with a weaker stock market to set the strength of the U.S. dollar, which impacts exports.

More domestic markets possible?

Within the U.S., only a small portion of Northwest hay moves to the Midwest and East. However, many Eastern states saw heavy rains in 2018, limiting supplies of high-quality hay. Reports also suggest supplies of organic alfalfa are reaching critically low levels in the Upper Midwest, and Northwest producers may be called to fill the void. Dairy cash flow will hinder the magnitude of sales.

Drought areas

The USDA World Agricultural Outlook Board’s latest drought maps again changed little over the past month, with percentages of hay- and alfalfa-producing areas considered under drought conditions the lowest since late spring of 2017.

About 10 percent of U.S. hay-producing acreage was located in areas experiencing drought at the start of the New Year (Figure 1), a 1 percent improvement from early December. About 17 percent of alfalfa-producing areas remained under drought conditions (Figure 2), unchanged from a month ago.

hay drought

alfalfa drought

Early season snowpack numbers were just starting to drift in. We’ll take a look at snow depths and water equivalent estimates starting next month.

Organic hay prices

According to the USDA’s preholiday organic hay report, FOB farm gate prices in mid-December were:

  • Supreme alfalfa large square bales – $257 per ton
  • Good and Premium alfalfa large square bales – $240 per ton
  • Good alfalfa mid square bales – $195 per ton
  • Fair alfalfa mid square bales – $160 per ton

Prices for delivered organic hay were:

  • Supreme alfalfa large square bales – $260 per ton
  • Fair-Good alfalfa large square bales – $225 per ton

Regional markets

Many local and regional hay markets were closed over the Christmas and New Year holidays, with regular market reports set to resume in mid-January. A summary of conditions and markets where information was available follows:

Midwest: In Missouri, a lot of folks are looking for hay, although many are smaller producers seeking a few small squares or one or two big rounds. After the dry summer, most local farmers do not have any surplus to part with, so while there is hay for sale, buyers must travel farther to get it.

In Iowa, buyers continue to look for better quality hay, which appears to be in short supply. Above-normal winter temperatures and lack of snowfall have proven helpful to livestock producers.

In Nebraska, calls for hay are primarily coming from regular customers, with little new market activity. Wet weather has made for poor field conditions, making it more difficult to get trucks to hay piles.

Southwest: In Oklahoma, most buyers are looking out of state for hay. In Texas, buyers are looking to cheapen feedyard rations, buying wheat and millet. Coastal bermuda delivered to the Panhandle stayed steady to firm due to freight costs.

East: In Pennsylvania’s Lancaster area, buyer attendance at hay auctions was very good, with hay supplies moderate to heavy.

Northwest: In Montana, hay demand continues to be mostly light to moderate on heavy offerings and mostly mild weather conditions. Supplies of hay in large round bales are in excess; demand for square bales has been moderate to good, with many sales to out-of-state buyers.

Dairy: No turnaround yet

Based on lower expected milk prices and relatively high cow slaughter rates, the USDA’s latest dairy outlook report isn’t overly optimistic. November 2018 cow numbers were estimated at 9.36 million head, still a high number, but the lowest since January 2017. Eight states did increase cow numbers compared to November 2017, led by Texas (+24,000 head), Colorado (+14,000 head) and Idaho (+10,000 head). California and Pennsylvania were each down 12,000 head, with Ohio down 11,000 head. Cow numbers were down a combined 16,000 head in Michigan, Minnesota and Wisconsin.

Meanwhile, through November 2018, federally inspected milk cow slaughter was on pace to easily top 3 million head. January-November dairy cow culling was higher only once in more than three decades – in 1986, during the whole-herd buyout program.  end mark

Dave Natzke
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