Hay Fever: Sun shining on buyers in the hay market
September 2, 2014
It's a buyer's market in the hay business. Combined with a seller's market in the cattle business, it might make sense to invest in some hay, said Tom Baer, part owner and auctioneer at Western Hay Brokers, a video and live-auction service for hay.
"This is a very cheap hay year," he said. "There are several reasons for that. Corn is really cheap. Hay follows that. Feeders aren't going to pay high prices for any type of hay when corn is cheap. The drought is over in this area and there's an abundance of hay available. There have been more acres put up in South Dakota and surrounding states, and on top of that, the yield has been up. People are haying stuff they've haven't hayed in years."
"I thought last year was a good year, but this year is better," said Karla Hernandez, forages specialist with South Dakota State University extension in Watertown.
Everett Johnson, from Reeder, N.D., has been in the custom and commercial haying business for 12 years, but while this is a great year to make hay, it's a bad year to sell it. "Hopefully a guy is in a financial position to ride it out a few years to where you at least get the break-even price. We're definitely going to carry a lot of hay over this year," he said.
With the low end of the hay market in western South Dakota hitting the $50 mark, and the high end just clearing $100, he figures he can't afford to sell it, at least not locally. "If you're not getting $75 you're going backwards at a high rate of speed," Johnson said.
Hay prices for round bales in the western South Dakota, North Dakota, Wyoming, Montana, Nebraska area are in the $50-75 a ton range for grass and alfalfa mix, with good-quality alfalfa bringing $80-90, according to Baer. Hernandez said prices are considerably higher in eastern South Dakota. Irrigated alfalfa in large square bales is bringing $220 a ton, with prices dropping to about $85 for grass and alfalfa mix. The National Ag Statistics Service reports higher prices in July of 2014 (see chart).
Recommended Stories For You
"A lot of people didn't realize the market was dropping as fast as it was, so it was disappointing to find out what the market really is, but the buyers are loving it," Baer said.
Johnson said he figures this year has produced an average of between a ton and a ton and a half of hay per acre, for all the hay he has put up, both alfalfa and grass. Normally, he said, he hopes for a ton per acre.
The high yield gives cattle producers a chance to build up the hay reserves 2012 depleted, but storing hay properly is important to keeping the relative feed value, Hernandez said. Round bales are difficult to tarp or keep in sheds, so often the best option is to try not to store them for more than a few years.
Big square bales have an advantage, Johnson said, because they are easy to stack in a shed or cover with tarps, and they don't lose much feed value as long as they were put up correctly and are kept out of the elements. "It's more expensive to put up square bales, but you feel pretty good because you know you can forget it for an indefinite period of time and it's still perfect hay when you take it out," he said.
Big square bales also require some specialized equipment to handle and feed, so that investment limits some producers options for feeding big square bales, especially the Dakotas, Wyoming and Montana.
Though a lot of the Plains states are seeing ample moisture this year, about a third of the continental U.S. is still classified as moderate drought or worse. The drought is concentrated on the West Coast, Southwest and up into Kansas and Oklahoma. That isn't pushing cow hay in round bales in this area to higher prices, but it is giving hay producers a boost for good alfalfa in big square bales, which are easier to transport.
Baer said his company sells thousands of tons of round bales, but doesn't see most of them going into a national market. "We favor squares because they're much, much easier for us to market. If you want to get out of your local market and expand into other areas, especially if you're putting up higher-quality hay and doing a good job of it, you have to have a big square baler and it will quickly pay for itself."
Square bales usually bring $20-40 a ton more than big round bales for decent-quality cow hay, up to $40-80 a ton more for horse hay.
The oil industry in North Dakota has made buying hay from that area more attractive for producers in the Southwest, since they can get cheaper freight. The oil fields draw a lot of trucks from the southern U.S., and those trucks are looking for freight to haul back south after they deliver to the oil fields. That inexpensive freight lets producers in the Southwest, especially Texas and New Mexico, buy hay from North and South Dakota and ship it for less than what buying hay closer would cost.
Johnson figures it would add about $1,000 per load to the cost of the hay if the buyers had to pay for transportation both ways. "If it wasn't for the volume of empty trucks in the oil field looking for a load to haul, it wouldn't work near as well."
For cattle producers and commercial hay producers like Johnson, there are a lot of costs associated with haying, but one of the biggest and most variable is the land price. Johnson turned down an opportunity to rent good hay for $20 a ton, but someone else rented it for that. If you figure somewhere between $13 and $15 an acre for swathing and $13-20 per bale on top of that it's hard to make money, Johnson said.
A report from SDSU Extension puts the average price of non-irrigated hay ground in South Dakota at $2,458 an acre. That's up about 7 percent over 2013, but shows a slowing in the market from the previous three years, which saw increases of 30 percent, 27 percent and 15 percent. Opposite ends of the state skew the average, with southeast and east central regions reporting hay land average values of between $4,500 and $5,000 per acre, while the northwest and southwest corners of the state just edged over the $500 mark in 2013, and are still far short of $1,000.
For producers who are making a living from cattle, not hay, Baer said buying hay in a year like this and holding it over until a drought hits just make sense. "If you've got a big cow herd, it's a smart plan to keep three to four years of hay around. I know some guys who keep more than that. They don't get caught having to buy that high-dollar hay. Ultimately the cows make the living, not the hay."