Consistent Hay and Cattle Patterns
Not all relationships hold cleanly over time. One way to keep some perspective and some sanity when trying to evaluate markets is to look for consistency. Are higher calf prices leading to more replacement heifers? Yes. Is the heifer mix on feed lower too? Yes. Thus, there are consistent indicators of expansion. Are the latest hay statistics also consistent with expansion? Here are some thoughts.
The 2014 Planting Intentions report has expected harvested hay acres in the U.S. almost unchanged from a year ago. At face value, the 58.3 million acres are up by 10,000 acres over last year, consistent with expansion. However, the change or increase is slight. Cows and replacements will need hay from this summer as feed this fall and winter. Replenished hay stocks may partly explain a muted acres response in cattle states. As of December 1, several states in the central U.S. had much higher stocks than a year earlier. Of those Iowa, Minnesota, and Kansas all have fewer hay acres expected for 2014. Missouri and Oklahoma stand out as states with higher stocks and more hay acres expected for 2014.
Hay prices remain vulnerable to increases on a number of fronts with the stable acres level anticipated. The May 1 stocks a year ago were at a very low level nationally. The prospects are for a slight improvement in 2014, but not by enough to sustain rebuilding demand. The recent weather also points to greater winter use and a potential delay in pulling supply forward in 2014. A second vulnerability is yield. The rolling 10-year average U.S. yield is 2.39 tons per acre. The past few years, the actual yield has been below that figure. Another below-average year would strain supplies. Agriculture price inflation also keeps pressure on hay prices. Some of what has pushed hay prices higher in recent years has been higher prices for other crops. As an input, hay prices have been inflated by those other prices. As the price of corn has fallen, some of that pressure has subsided. However, cattle prices and other crop prices remain high. Any increase in corn prices would quickly push hay prices higher.
Domestic use is the final aspect tying hay prices to cattle numbers. In recent years, backing out trade volumes from hay disappearance gives better insight into domestic use. The use figure bottomed out at 1.83 tons per acre following the 2012 harvest. The longer-run use figure is above 2.00 tons per acre. These figures account for the recent decline in livestock inventories. If cattle expansion is to occur, that use will likely have to increase. As cattle on feed are fed longer, they consume more corn, but also more roughage like hay (more demand). As heifers are retained as replacements, they typically consume a greater portion of forage in rations (more hay demand). As cow-calf operators look to expand, they may also want to have a buffer stock of hay on hand (more demand). The projected hay balance sheet suggests that all of those factors can be accommodated, but with little room to stay consistent with an expanding cattle supply.
Fed steer prices were lower this week, but remain well above last year’s level. In Nebraska, feeder cattle traded higher than a week ago. Replacement heifers in Nebraska are trading at large premium to other heifers. Locally (in South Dakota) much of the talk has centered on how decent grass prospects have been fueling demand for pairs and bred cows. On the feed side, spot corn and distillers have been constant. The price of hay at the end of March was at $173 per ton nationally, which was down from $195 per ton a year ago and up from $168 per ton in February.