Ample Stocks Ahead

By Mark Parker
Progressive Farmer Contributing Editor

Beef producers across most of the nation should find ample hay and feedstuff supplies this winter, along with moderating prices.

"In the national hay complex, during 2014 and into 2015, we are seeing a trend toward normal prices and normal stocks," said Jessica Sampson, an economist with the Livestock Marketing Information Center (LMIC). It provides economic analysis and market projections for the livestock industry.

After the recent widespread drought reduced supplies and generally increased prices, stocks are now up significantly. This is especially the case in the big cattle-producing states, according to the USDA's most recent hay report, "Feed Outlook," released in May.

"Together with favorable pasture and range conditions, that would lead us to project continued softening of hay prices for the 2015-16 marketing year," Sampson said.

According to USDA, by this past May, hay stocks had rebounded by 27.9% compared to year-ago levels. At 24.5 million tons, that's 73.2% higher than 2013 levels and the highest May hay-stocks number reported since 2005. Twenty-two states posted hay-stock increases of 20% or more above the previous year.

These improved stocks meant annual prices for the May 2014 through April 2015 marketing year were the lowest since the 2010-11 season. They were still strong, however, coming in at the fourth-highest price levels on record.

Alfalfa nationwide, at $194.20 per ton, was 2% cheaper than in the 2013-14 marketing year. The price for all other hay, including grass and wheat, dropped by 6% to $132 per ton. Alfalfa ended the 2014-15 marketing year at $184 per ton while other hay was at $142 per ton.

Pre-2011, other hay prices were in the $90- to $100-per-ton range but had jumped up to $120 to $150 per ton after the 2011 drought.

PRICE FORECASTS

For the 2015--2016 marketing year, LMIC projects the national average price of alfalfa hay to be $10 to $20 per ton lower than the previous marketing year.

Other hay prices could decrease somewhat more than alfalfa, Sampson said, and are expected to be $15 to $18 per ton lower.

"That, of course, is barring any major weather-related issues during the hay-production season," Sampson said. "We started off the season well across much of the country. The Southern Plains, the Southeast, the Midwest all experienced good moisture, so increased production and bigger yields are likely."

The notable exceptions are California and other parts of the West, where drought continues to plague livestock and crops.

ACREAGE OUTLOOK

Given the moderating prices, Sampson does not expect to see a big shift in the number of acres utilized for hay this year.

"Lower prices don't incentivize a shift to putting more land into hay production, so we do not expect a major increase in production from more acres," she said. "Right now, hay-producing acres are fairly consistent with what we saw in 2014."

Sampson noted one possible area of concern this season is the supply of high-quality hay like alfalfa, especially from first cuttings. Hay growers in many parts of the country suffered from "too much of a good thing," as more-than-abundant rains forced them to choose between putting up hay that was too wet or waiting until it was too mature. Many growers in Ohio and other parts of the Corn Belt expected to lose one cutting of alfalfa production.

OTHER FACTORS

In a supply and demand market, Sampson also has to consider the fact there are now more cattle to consume the nation's hay.

"As of January 1, we were seeing an increase in the cattle inventory as producers began herd rebuilding," she pointed out.

"There was a 2% increase in the beef-cow inventory with significantly reduced beef-cow and heifer slaughter. I think that increase in cattle numbers will be offset by good pasture and range conditions, and an expected increase in hay production, so we don't expect a significant impact on hay prices."

Likewise, hay exports should not have a major effect. Sampson explains exports use only about 3% of domestic production (3% of that being alfalfa and 2% of other hay) and go primarily to Japan, South Korea, Taiwan and the United Arab Emirates.

The LMIC economist emphasizes there may well be some significant regional differences in this year's hay outlook.

"It's not just regional availability and demand that can affect supply and prices," she said. "It's also dependent on who is pulling from that supply. If a lot of Colorado hay were to be shipped to California, for instance, that could create a higher price scenario for that particular area."

She noted LMIC's projected numbers are intended to reflect a general trend across the country. On a state-to-state basis, prices often vary widely. The mid-May price for alfalfa in Kansas, for example, was $117 per ton compared to $165 per ton in neighboring Missouri.

COMMODITY FEEDS

Like most crop-based commodity feeds, one of the most significant, dried distillers grains with solubles (DDGS), tends to follow corn prices. According to USDA, the projected corn price range for the 2015-16 season is $3.20 to $3.80 per bushel, compared to the 2014-15 range of $3.55 to $3.75. Additionally, ethanol production, which generates DDGS, is running strong so beef producers who utilize DDGS shouldn't expect major price changes.

"It looks like the supply of distillers grain should remain strong," Kansas State University agricultural economist Dan O'Brien said. "The caveat would be a significant problem with this year's corn crop. There's also a significant export market for DDGS, so what happens in China and in the financial markets can also come into play."

For distillers grains or any other feedstuff, he stressed beef producers need to closely monitor local sources and keep an eye on national and international events that could have an effect on the market.

Soybean meal prices, according to the USDA World Agricultural Supply and Demand Estimates Report, are projected to be $305 to $345 per short ton. Soybean oil prices are expected to average 30.5 cents to 33.5 cents per pound for the 2015-16 season.

The prices of most commodity feeds have been running lower this year than last, according to USDA. At midsummer, prices for cottonseed meal, feather meal, corn gluten feed, wheat middlings and rice bran were all significantly below year-ago levels.

Whether commodity feed prices remain relatively low will be largely dependent on fall harvest, economists said. At this point, however, beef producers are looking forward to a marked improvement in both supply and price of the feeds on which they rely.

(VM/CZ)

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