What to watch for surrounding hay and forage prices in 2020

A broad range of prices tied closely to local and regional supply and demand characterizes the U.S. hay and forage marketplace. While there’s a general nationwide trend toward larger stocks and softening prices as the 2020 growing season unfolds in much of the country, a few regional variables stand to influence hay pricing as cattle producers look to cover their forage needs.

In its biannual tally of national hay supplies in December 2019, the U.S. Department of Agriculture (USDA) showed that hay stored on farms was 7% higher than the same time the previous year. Slightly lower general hay disappearance and increased dry hay production in Kansas, Missouri, Montana, South Dakota and Texas contributed to larger supplies. Though some regions, such as the southeastern U.S., saw hay stocks tighten in that same time frame, the national trend toward slightly higher supplies — and resulting lower prices — is anticipated to extend through 2020.

“The data we got for December 2019 hay stocks showed that generally, stocks were up on a year-over-year basis, both for alfalfa and other hay production,” said Oklahoma State University Extension Agricultural Economist and beef market expert Derrell Peel. “It does vary around the country, and we certainly have areas like the upper Midwest, Great Lakes and parts of the Southeast where supply is tighter, but supplies are ample in the central Plains.” There are variables relating to both quantity and quality that can influence the general market trend. Weather challenges dating back over a year (harsh 2019 winter conditions, excessive moisture and resulting floods), the state of the U.S. dairy and grain markets and the influence of carryover hay production will be major supply/demand factors to watch as the 2020 hay-making season gets underway for producers around the country.

The weight of the weather

"Affecting both hay and forage growers as well as livestock producers who rely on their production, the weather last year was anything but consistent and calm."
Affecting both hay and forage growers as well as livestock producers who rely on their production, the weather last year was anything but consistent and calm. What started out as a harsh winter in parts of the upper Midwest and northern Plains unfurled into excessive spring and summer moisture that led to delays in early forage growth and cuttings, which caused some regional tightening of supplies, price increases and forage quality issues. Though it’s been almost a year since those adverse weather conditions, they could continue to affect prices for hay producers and their customers, especially when it comes to supreme and premium alfalfa.

“I worry about the longer-term nutritional implications of poor-quality hay as a result of last year’s challenging weather. Everybody I know around the country has encouraged producers to test hay this year because quality has been such a concern,” Peel said. “Even our beef producers are experiencing quality issues with grass hay.”

Another spring of inclement weather could cause a repeat in delays and compromised hay quality for producers this year, potentially slowing or reversing the overall trend of gradually rising production. Any such price reaction will be based on local supplies and call for close attention to weather from the spring thaw into the growing season. “I would keep a close eye on the weather. We’ve had more snowfall this year compared to last year, and as it melts it will contribute to already higher-than-normal water tables.” said Greg Bussler, a Wisconsin state statistician with the USDA’s National Agricultural Statistics Service. “We want to watch how quickly spring temperatures change and how that enables farmers to get into the field. In 2019, delays weren’t as bad for haylage and baleage producers, but they persisted for dry hay producers through the entire growing season.”

If similar weather delays happen in 2020, they’re most likely to affect dry hay producers and supplies; given the wider time window for harvest and baling, baled silage, haylage or baleage producers will be less adversely affected. Though the dry hay market typically serves as a benchmark for baleage prices, look for the latter to react less to weather challenges than dry hay prices and supplies if spring and summer feature widespread moisture excesses like in 2019.

Dairy sector demand

The well-documented struggles of dairy farmers around the country — exemplified in Bussler’s state of Wisconsin where hundreds of family dairy farms have shuttered because of adverse market conditions in the last two years alone — are expected to continue through 2020 as small farms are consolidated into larger operations. Milk production in that state fell slightly in 2019, and though farm numbers continue to decline, cow numbers remain relatively stable as dairy prices have moved slightly higher since bottoming out in the last two years. The erosion in small dairy farm numbers started 2020 on a slower pace than the previous year. These factors combined give the dairy industry reason for slightly increasing optimism in 2020 that profitability may be returning.

Though the dairy sector is certainly not out of the woods, sustained year-over-year production will continue to feed hay and forage demand, especially in areas with high local dairy populations. On its own, the dairy sector will continue to fuel demand for high quality alfalfa, baleage and other common feedstocks. If weather challenges continue to strain producers’ ability to meet the dairy industry’s need for the highest-quality hay feedstocks, demand may jump ahead of supply, causing prices to continue their incremental rise.

“Prices for dairy-quality hay are fairly high, and they reflect the fact that there isn’t enough supply out there,” Bussler said, adding that although early-spring supplies are adequate, any weather delays or disruptions to early-season production could trim those supplies and cause price increases in the next year.

"Forage producers should stay attentive to areas where beef numbers increase for direction on high-demand areas and stronger pricing opportunities."
As dairy farmers continue to adjust to a changing, consolidating industry, a new dynamic is starting to unfold in areas where smaller dairy farms have been part of the landscape for decades. As large dairy farms grow larger, the land and resources that were once devoted to the farms being consolidated are starting to go toward other ag sectors, namely beef production. That could mean a slight increase in demand and prices for dry hay and baleage in areas where beef producers pick up the slack left by declining dairy farm numbers. As a result, forage producers should stay attentive to areas where beef numbers increase for direction on high-demand areas and stronger pricing opportunities.

“There’s an increasing number of farmers who were once in the dairy business in some areas like the upper Midwest who are going into the beef business, or the land is being used to support beef operations,” Peel said. “That conversion revolves mostly around forage availability.”

COVID-19 impact
updated April 17, 2020

The world market for alfalfa and other hay is also being influenced by the COVID-19, or coronavirus, pandemic that has sickened millions of people around the world and been dubbed a major threat to the global economy. The virus has halted global economic activity, but agriculture is among the sectors dubbed “critical infrastructure,” so operations have largely continued in an effort to sustain the food supply chain. While market prices for some forage end-users — like the U.S. dairy sector — have fallen, livestock feed is still essential and feeding must continue. Factors such as possible packing plant closures may have varying effects on the numbers of cows needing to be fed. As the hay production season gets underway nationwide, pricing may reflect slower, reluctant demand, and it remains to be seen whether it catches up to a more “normal” pace.

“We’re seeing new contracts on alfalfa start out a little lower than last year, so we’re already seeing some softer prices. But it’s hard to tell down the road,” said Josh Callen, market research analyst with The Hoyt Report. “A lot of large dairies were already feeding less alfalfa, so there’s been less buying of large hay lots and some resulting softening of demand. But at the end of the day, the cow’s still got to eat.”