- Humble hay has become a key commodity in the US agricultural market
- Price gains in drought-stressed areas are far outpacing the rally in corn and soyabeans
- The furious Midwest hay rally has gone largely unnoticed outside the cattle industry
- Significant because it will push up meat and dairy prices as farmers shrink herds they cannot feed
Humble hay has become a key commodity in the US agricultural market, with price gains in drought-stressed areas far outpacing the rally in corn and soyabean prices and further straining the country's beleaguered cattle industry.
The price of bales has more than doubled over the past year at auctions in states such as Iowa and Illinois, showing the impact of the severe Midwest drought on forage supplies. Average US hay prices have reached record levels after increasing a more moderate 8 per cent on year.
The furious Midwest hay rally has gone largely unnoticed outside the cattle industry, as investors trade crops such as corn and wheat in Chicago's futures exchanges. But the rise is significant because it will push up meat and dairy prices as farmers shrink herds they cannot feed. Hay supplies per animal are at the lowest level in more than 25 years, economists at the US Department of Agriculture said.
"My hay pile is going down in a hurry," said Michael Cordia, who farms in Belgrade, Missouri. "I'm going to have to sell my cows." Most cattle farmers would normally be grazing cattle at this time of year and mowing hay supplies for wintertime.
Midwest pastures are in very poor condition, however, forcing cattle to eat hay now. The US faces its smallest hay harvest since 1976.
At an auction in Rock Valley, Iowa, last week, hay topped $300 per short ton, up about 150 per cent from August 2011, the auction head said. Good quality alfalfa bales had more than doubled in a year at the auction in Congerville, Illinois. In Missouri, prices rose as much as 70 per cent on year, the US Agricultural Marketing Service reported.
Trucks have delivered bales to Iowa from as far away as Manitoba province in Canada, said Paul McGill, owner of the Rock Valley auction. "We've been moving more hay than we ever have. This is normally our slow time of the year," he said. "There's a real question of how long we'll be able to keep a decent supply available, and I'm pretty nervous about it."
As an emergency measure, the USDA has allowed livestock farmers to cut hay and graze animals on 3.8m acres (1.5m hectares) of land that had been set aside for conservation. The department nevertheless sees hay production falling by 8 per cent this year to 120.3m short tons.
Unlike corn and soyabeans, which have respectively gained 11 and 21 per cent in the past year, no futures markets exist for hay. The commodity is hard to standardise with bales that come round and square, dry and moist, and from species as varied as alfalfa, brome and timothy.
"There is no uniform quality standard for hay. The hay sellers like it that way. They tend to wheel and deal in the marketplace," said Stephen Barnhart, forage agronomist at Iowa State University.