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Serving: IA

Bad start to forage season

Farm Progress Cattle grazing in dry forage field
EARLY PLANNING: Evaluating standing forage and hay supplies is critical now in order to plan how best to use and stretch those resources during drought, if necessary. Early planning may help avoid the higher feed prices that typically accompany droughts.
If drought conditions keep intensifying, planning to match livestock feed needs now to expected feed supplies may minimize more painful decisions later.

A sizable swath of Iowa is bone-dry and getting drier. Corn prices have surged. Hay prices lag corn prices, at least so far. But that may not last, depending on the weather.

Feed management is usually the initial livestock focus in a developing drought. Evaluating standing forage and hay supplies is critical now in order to plan how best to use and stretch those resources, if necessary.

Early planning may help avoid the higher feed prices that typically accompany droughts. Animal inventory management may be required if drought conditions persist. The tradeoff between buying feed, or liquidating animals, is always economically tricky. As the saying goes, "Hindsight is 20/20. Foresight isn't."

Hoping for better conditions is fine, as long as you also plan for the worst. Failure to plan will bring easier decisions later because, unfortunately, fewer alternatives will be available — and all of them may be more painful.

Worst start for forage since 2012

Hay yield is the largest factor that can change in the short run and move hay prices. Hay yield is positively correlated with range and pasture conditions. May 3 kicked off the pasture and range reporting season. On Mondays, USDA releases crop condition estimates in the Crop Progress report compiled by the National Agricultural Statistics Service. The week ending June 6 saw 15% of Iowa pasture acres rated in poor or very poor condition. This is the worst start of June since 2012, when 19% of pastures were reported in poor or very poor condition. In the first week of June 2000, 38% of Iowa pastures were in poor or very poor condition.

Plotting hay prices alongside corn prices suggests a strong, predictable, relationship exists. From July 2012 to July 2013, Iowa corn prices averaged $7.08 per bushel. The price received for alfalfa hay produced in Iowa was $231 per ton. Other hay (excluding alfalfa) fetched $148 per ton. Prices then dwindled through 2017 in a mostly synchronous fashion. In 2017, the calendar-year average for Iowa corn came to $3.30 per bushel, alfalfa was $103 per ton and other hay was $83 per ton. Corn prices more than halved in those four years, while other hay and alfalfa prices simultaneously dropped 44% and 56%, respectively. The next two years saw slightly higher prices before all prices fell congruently in 2020

Corn prices have since rallied. Iowa corn prices advanced 74%, from an August 2020 low of $3.08 to $5.35 in April 2021. In May, corn prices surged even higher. Hay prices have yet to follow the corn price rally. Other hay rose 10% from $88 per ton last August to $97 per ton in April. Iowa alfalfa went from $121 per ton to $120 per ton over that same period. Prices received for corn and hay, as reported here, are from USDA's monthly Agricultural Prices report and represent sales from producers to first buyers. They are survey-based estimates and include all grades and qualities.

What next?

Will hay follow corn prices higher? Not necessarily. These markets are indeed strongly correlated. But correlation does not automatically equal causation. Casual observers perceive that acres can easily shift among crops to quickly return to equilibrium price levels. However, a significant shift from hay and pasture production to corn seems unlikely. Much of the hay is perennial. Higher feed prices will make forage crops even more valuable. Specialized hay machinery can be a large upfront cost that needs to be recouped over many years. For pasture, it’s fencing, watering systems and multiyear pasture management that provide some fixity.

In most markets, there are many factors that drive prices. Supply, demand and prices of hay are no different. Hay is a highly regional crop. It can have dramatic production and price differences among states. Plus, hay is a difficult commodity to transport, which can exacerbate supply situations.

USDA's May Crop Production report included national hay stock estimates and hay stocks by state. The estimates are based on a National Agricultural Statistics Service survey of producers. As of May 1, Iowa hay stocks were 430,000 tons, down 80,000 tons, or 16%, from May 1, 2020. But May 1, Iowa hay stocks were up 25,000 tons, or 6% higher, than the 2018-20 average. Nationally, May 1 hay stocks tallied 18.0 million tons, down 12% from May 1, 2020, but 7% higher than the three-year average.

Head counts drive hay demand

The hay crop year runs from May through April, so the May 1 stocks are the beginning stocks for the current year. Beginning stocks suggest some increased supplemental feeding could be accommodated.

One common measure of feed demand is from roughage-consuming animal units (RCAU), which weights different types of livestock by the amount of non-grain feed consumed. Various demand segments include dairy cattle, cow-calf operations, beef feedlots, sheep and goats, equine, processing and exports. The Livestock Marketing Information Center has a supply and demand balance sheet for all hay. LMIC projects this year's national hay supply will be the highest per RCAU since the 2017-18 year.

Schulz is an Iowa State University Extension livestock economist.

 

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