There is less hay being produced in Iowa and elsewhere in 2011, as more hayfields have gone to corn. Also, last year many new alfalfa seedings were pretty much drowned out in July in Iowa. Thus, hay acreage is down, row crop acres of corn and soybeans are up.

Farmers are still growing hay, but many aren't raising extra hay to sell. More are devoting just enough acreage to hay to meet their own needs. "Hay supplies are dropping and demand, especially for high quality dairy hay, looks fantastic for the next 12 months," says Dale Leslein, manager of the weekly hay auction at Dyersville in northeast Iowa. The Dyersville Sales Company is an auction market that handles a lot of hay, with buyers and sellers from all over the country.

High prices for corn, soybeans are resulting in fewer hay acres

This spring new crop hay was selling in late May in the $240 per ton range, with a Relative Feed Value of 226, at 13.5% moisture, says Leslein. Some old crop dairy hay, testing 240 RFV sold for as high as $290 a ton. High quality hay is worth good money. Leslein thinks top-quality alfalfa could sell for as high as $400 per ton in the next 12 months.

Demand is strong and dairy hay isn't fed only to dairy cattle anymore. "We have dairy goats and sheep," he notes. "And with high-priced soybean meal and corn, dairy hay is finding its way into starter rations for calves. Even hog producers are looking at putting hay into sow rations."

There's a big demand base for hay in the dairy market and it'll expand if corn and soybeans stay at today's high price levels or move higher. Increased demand for top quality hay from new markets such as dairy goats and using alfalfa protein in other rations makes sense with high-priced feedstuffs. Looking at the feed value of alfalfa compared to corn and bean meal, alfalfa is likely under-priced and will rise. Is $400 a ton closer to the mark? It may be.

Prices will rise as demand stays strong for high quality hay

Leslein isn't saying the hay market will reach that lofty level soon. But he believes a year from now prices for top-quality hay could bump up against $400 a ton, especially if weather hampers hay production. With hay acres so tight in 2011, there's no room for error. "We need good weather to get good yields and hay harvested at good quality," he notes. "We need heat units and good haymaking weather."

A significant amount of hay grown in Nebraska and Dakotas is normally shipped into Iowa. But drought in the southwest U.S. has resulted in a marginal hay crop in Kansas this spring; Oklahoma is burnt up; Texas is in rough shape. A lot of demand for hay in those dry areas is coming into Nebraska and South Dakota. "That hay would normally be shipped our way," he says. "Instead, it's going to Texas and Oklahoma."

If you will need hay next winter, this summer is the time to buy

Canada and North Dakota are also having hay production problems this spring—it's too wet. "We'll see tight hay supplies for the next 12 months," says Leslein. "If you are an end-user and normally buy hay, I recommend you buy through the summer months rather than wait until fall to try to get your supply locked in."

Another consideration, Leslein says, is the Chinese are a big wild card in the hay market this year. "Last year they became the number one importer of dairy hay from the USA and if they come back to the U.S. to buy hay again this year like they did last year, supplies could really be tight," he says.

Can you believe it? China is now buying hay from the USA?

China, buying hay from the USA? Yes, that's true, says Leslein. The Chinese are involved in just about every aspect of the American economy these days, even the hay market. "China passed up Japan and Korea last year as the number one importer of U.S. hay," he says.

"The Chinese took nearly every acre from the state of Wyoming is what I was told by hay producers and marketers out west whom I deal with," adds Leslein. "At Dyersville, a significant amount of our hay is shipped from Iowa to Spokane, Washington and a good share of it eventually gets loaded on ships for overseas shipment. The truckers bring Washington wheat straw back to me in Dyersville on their backhauls."

Another trend worth noting: "Small square bales are a dead commodity," says Leslein. "Less than 1% of the hay we move through our weekly auction is now sold in small squares and they never bring a premium. Big squares that are the 3 ft. x 3 ft. size and vary in length are the bales that sell the best."

Hay making tip: With 60 pound bales and 33.3 bales per ton at $400 a ton, that's $12 a bale. It'll pay to produce high quality hay in 2011. Leslein's advice: Try to cut hay between 2 p.m. and 6 p.m. You can increase the RFV by 10%. During that time is when sugars are up in the plant and the alfalfa crop has highest relative feed value.