Hay has always been a more regionalized market than broader commodities like corn and, to some degree, the latest run-up in hay prices is regionalized as well. The drought in the Southwest, and overly wet conditions in the North, have reduced supplies and kept demand strong despite cow liquidation.
The more than doubling of hay prices unquestionably is weather-driven, but ethanol subsidies also have played a role. Certainly, a lot of hayground is hayground, but a lot of hay is also grown on irrigated acres that are convertible to corn production. That process is underway and hay prices will have to rise to purchase those acres back from grain production.
One could write a novel about the structural changes occurring in our industry as a result corn-industry subsidies. For example, a producer I know lives in an area where purchasing hay had always been cheaper than producing it himself. He feeds 2.5 tons/hay/cow/year and he is looking at paying $100/ton more than he did a year ago. That equates to $250/cow. He averages a 90% weaned calf crop, so his cost per calf has increased $277/head in one year, just based on corn prices.
He was feeling good about making $150/head; now he says he’s losing more than $125/head. He went from contemplating expansion, to trying to decide if this is just an anomaly or part of the structural changes driven by ethanol.
He says he had long dreamed of today’s prices, but rising energy prices, corn prices, land prices and other inputs, such as hay, have increased his input costs by more than $200/head long-term, and he harbors significant concerns about interest costs rising in the future, as well. The end result is that he is pondering whether he can be viable without having hay production as a part of his operation.
That isn’t a viable option within his current operation, so he’s looking at whether he can purchase an operation that would allow him to purchase virtually no feed inputs.