2008 COLORADO HAY PRICES--A FORECAST
By Gary Hubbell
Ranch Real Estate Broker, Hay Grower
970 921 5588
970 988 2122 cell
grandviewranch AT gmail.com
HAY--AN AGRICULTURAL COMMODITY
There are several factors at work in determining the price of hay across the country. Hay prices can be variable on a local and regional basis, according to factors such as drought, local planting patterns, and local demand. On a national basis, hay prices can be influenced by sizes of beef and dairy herds, the amount of acreage planted in hay, weather patterns, and precipitation.
Hay is a commodity that can be tracked like any other commodity, such as corn, soybeans, wheat, or porkbellies. The U.S. Department of Agriculture publishes a weekly report on hay prices. It gives a state-by-state report with pricing for various regions of the state.
In Colorado, 2008 looks to be a great year for hay production. As of the time of this writing (Feb. 15, 2008), the snowpack in major river drainages across the state is well above average. On average, the snowpack is 138% of normal. Some southern Colorado basins, such as the Rio Grande, are at 156% of normal. Hay production has everything to do with water. Very few regions of the state can produce hay without irrigation water. Hayfields were saturated with late-autumn rains before snow covered the entire state in mid-December.
These abundant water supplies mean that growers across the state will have a very good year growing hay, and harvests will be good. However, there are other factors that call for tight hay supplies.
ETHANOL PRODUCTION AND THE RIPPLE EFFECT ON HAY PRICES
In the eastern Colorado plains counties, many growers have plowed alfalfa fields under and seeded them with corn to feed the growing demand for ethanol production. Corn is now trading at over $5.00 a bushel, and winter wheat futures traded this winter as high as $24 a bushel! These are the highest grain prices that we’ve ever seen in the U.S. As recently as two years ago, wheat was as low as $3 a bushel. This will prompt many Great Plains growers to plant grains instead of alfalfa. Higher corn prices pushed up the prices of other grains, and forecasters say that corn production will drop 5% in 2008 because of more wheat, barley, and soybeans planted in response to very high prices for these grains. Practically speaking, it's very difficult to plant corn or wheat on Colorado mountain hayfields. You won't see anyone plowing up a mountain ranch to plant wheat. But you will see farmers on the eastern plains of Colorado and in Nebraska, Kansas, South Dakota, Oklahoma, and other plains states plowing up alfalfa fields to plant grain crops, and that will have a ripple effect on hay prices across the country.
A LONG, COLD WINTER USED UP MORE HAY
The winter of 2007-2008 will be remembered for a long time for its snowfall, wind, bitter temperatures, and general nastiness. Snow came early and stayed a long time. Denver had more consecutive days of snow on the ground that they had had for more than 30 years. Park County residents were plagued by snowdrifts up to 24 feet deep. Crested Butte has snowbanks 10 feet tall on the main street in town. Gunnison and Eagle County wildlife officials have had to feed starving herds of deer.
Many ranchers rely on grazing their cattle on alfalfa and hay stubble through much of the winter. When snows come early, that forage is no longer available because cattle can’t dig for feed like horses can. Colder temperatures mean that ranchers have to feed more calories for animals to burn to maintain core body temperatures. That means ranchers have had to start feeding earlier and feeding more.
2007 HAY INVENTORIES WERE USED UP
In the winter of 2006-07, the winter lasted longer than anticipated and was colder than usual. Hay inventories across Colorado were used up. Very little hay was left over going into the haying season.
MORE DEVELOPMENT OF HAY PROPERTIES
Look around you, and think of all the farms and ranches in your area that used to grow hay, but are now a sea of houses. Every time a farm or ranch goes out of production because of development, the hay supply gets a little bit tighter. Ironically, many of these working farms and ranches are converted into 5-acre or 10-acre ranchettes with several horses—hay consumers. Most of the available acreage is given over to pasture, and when the pasture runs out, the owners become hay buyers, driving more demand while shrinking the supply.
THE BOTTOM LINE—MY 2008 HAY PRICING FORECAST
At the time of this writing (February 2008), USDA commodity prices for Colorado hay range from $120-$185 a ton for big bales of premium alfalfa, and up to $220 a ton for small square bales of grass/alfalfa hay ($8 a bale). As the winter draws on, hay prices will continue to accelerate, possibly reaching $10 a bale or more. Colorado hay supplies will shrink dramatically, until hay will be hard to find and ranchers and horse owners will have to really search for hay.
When hay harvests begin to occur in May and June of 2008, prices will moderate. Abundant harvests will fill up hay barns and prices will drop in certain areas to $4-5 a bale for square bales and $100-120 a ton for large round bales of alfalfa-grass mix.
However, this situation will be temporary, as demand picks up, supplies will become tight again, and prices will rise. By mid-winter 2008-2009, prices will be right back where we are now--$6-8 a bale for small square bales and up to $185 a ton for large square bales or round bales of premium hay.
MY LONG-TERM FORECAST FOR COLORADO HAY PRICES
Honestly, I don’t see hay prices moderating again to the lower levels that we experienced in the late 1990’s and early 2000’s. At one time, you could consistently buy high-quality hay for $3 a bale —or even cheaper! The population of the United States and Colorado in particular has grown very rapidly. Many thousands of acres of hay have been taken out of production, either from development or from plowing under to re-seed in grain crops. Diesel fuel and nitrogen-based fertilizers have increased rapidly in cost. Hobby farm owners and horse acreages have proliferated, resulting in a net increase of hay consumers.
A NEW AGRICULTURAL BUSINESS MODEL
Another phenomenon has begun to occur, which is the retirement of a generation of older ranchers and farmers. Many of these old-timers bought their haying equipment back in the 1950’s and have been keeping their machinery working with a lot of ingenuity and baling wire. Their entire shed full of worn-out haying equipment might be worth $10,000 on today’s market. As the old-timers retire, new-generation farmers are taking over. When they go shopping for haying equipment, they’re experiencing sticker shock--$80,000 for a swather, a new round baler that costs $30,000, a square baler for $18,000, a tractor that costs $65,000. (To read about the cost of getting set up with haying equipment, read this article on hay equipment set-ups: link: www.aspenranchrealestate.com/haying-equipment.html ) It’s simply impossible to purchase and maintain equipment at these prices and sell horse hay for $3 a bale. Many of the old-timers never really “penciled out” the cost of their equipment, water, fertilizer, labor, land payments, and fuel.
Younger farmers are more sophisticated, and they’re running Excel spreadsheets and figuring in their true cost of production. Even at prices up to $200 a ton, it’s not a hugely profitable enterprise.
SHRINKING WATER SUPPLIES FOR HAY PRODUCTION
Many aquifers across the Midwest are being sucked dry by farmers who have used center-pivot sprinkler systems to irrigate alfalfa fields. Aquifers in Texas, Nebraska, Colorado, and Kansas are being rapidly depleted. Municipalities such as Aurora, Denver, Thornton, Littleton, Longmont, and Fort Collins along the Front Range are buying up water supplies from agricultural users and converting the water to household use—resulting in a net loss of hay-growing capacity. Though 2008 should be a good year for water, the long-term prognosis is not good. Hay growers with strong, consistent water supplies will be able to finally realize a return on their investment of land, water, machinery, and labor.
Hay prices will continue to escalate for the long term, and hay buyers should expect yearly increases of 10%. Hay buyers on the Front Range should expect $8-$10 a bale hay prices for horse hay. Western Slope buyers should expect to pay $6-$8 a bale for the next few years, with prices rising significantly as there is more development of agricultural land, more pressure on water supplies, a steep increase in fuel costs, and a growing awareness of the value of the commodity among growers.
JUNE 2008 UPDATE: HAY PRICING AS THE HARVEST NEARS
I'm writing this on Memorial Day, May 26, 2008. The weather this spring (and all winter!) has been cold! We've had only a few warm days with strong sunshine. Most of the hay growth occurs in late April and May, but this year we're at least two weeks behind, and actually, more like three weeks behind in hay growth. While our first cutting normally takes place around June 10-20, it will probably be at least late June this year, and possibly in July. Snow is melting slowly in the high country and cattlemen are unable to bring their herds to the mountains. Ranchers are buying up any hay they can find to feed their cattle, which are restless and anxious to go to the mountains to eat that sweet green grass. The aspen groves have barely started to leaf out, and there are still deep snowdrifts at higher elevations. This has caused another emptying out of hay stocks. Stackyards and hay barns that normally hold a reserve inventory are empty. Even though we will have abundant water this year, will hay be cheap as a result? No! Hay supplies are almost exhausted already, and ranchers still have to feed before they can send their herds to mountain pastures. Hay is a sought-after commodity.
HAY TRUCKING AND COMBINING LOADS--THE IDEAL WAY TO GO
My advice is to get your hay reserved early and get together with three or four neighbors to buy a semi-load of hay. For example, if you live in Parker or Elizabeth, Colorado, and you have four horses, you might need six tons of hay, or 180 bales. If you have a big diesel pickup and a 28-foot flatbed trailer (and not many people have that kind of rig), you can make the trek over here and spend $200-$300 on fuel and a long day doing it. A semi trailer can hold between 540 and 650 bales of hay, depending on the type of trailer. You can split the cost of trucking between three or four neighbors in a similar situation and have the hay delivered to your barn, and not have to spend a whole day driving.
