“Estimates are that hay prices will settle in the four-to six-cents-per-pound range this year with a strong possibility that these prices will soften”
July is usually the most difficult time of year to determine hay prices. Yields and quality are uncertain and demand is an unknown factor. July of 2009 was no exception and was, in fact, even more difficult.
“Spring and early-summer drought forced many cow-calf producers to cull their herds heavily even to the point of total liquidation,” says Ted Nibourg, crop specialist with Alberta Agriculture and Rural Development, Stettler. “There were reports of extreme hay prices earlier this summer, and these prices were typically paid by producers in desperate situations; they ran out of feed and pastures were not growing. These producers were waiting for an opportunity to get their cattle to market in a swamped auction market system. They just did not want their cows to lose condition before they were able to get to the auction market.
“Some decent rains during the first part of July throughout most of the province resulted in some increased hay and pasture production. As well, a second flush in cereal crops that were written off earlier will allow for increase forage production. Coupled with reduced demand due to a smaller cow herd, a softening in forage prices compared to earlier expectations can be expected.”
The value of a standing hay crop is based on the estimated market value of hay in the bale, less cutting and baling costs plus an allowance for weather risk. The weather risk allowance would be at least 10 per cent (e.g. for grass hay) and as high as 30 per cent (e.g. for alfalfa) of the expected market value. Without this allowance, a badly weather-damaged crop could cost the producer the same amount as if they had purchased ready-made, top-quality bales from someone else.
The 2009 Custom Rates Survey Summary outlines the current rates being charged for most custom haying operations. Producers can also use Alberta Agriculture and Rural Development’s online Machinery Cost Calculator to determine what these costs will be for an operation.
Many Alberta producers include the asking prices in their “hay for sale listings” on the Alberta Hay and Pasture Directory, which can also be found on Alberta Agriculture’s website. Agriculture Financial Services Corporation (AFSC) publishes historical forage price data for all regions of the province.
A crop share is another simple but effective rental arrangement for a forage crop. The tenant harvests the crop and gives the landlord a share of the crop in bales. The landlord then has a product that is ready for sale or for their own use. With this year’s higher-valued hay crop compared to the past few years, the landlord’s crop share for a hayfield can vary from 40 to 60 per cent. It is important that the estimated market value, yield potential and harvest costs for the crop are considered to ensure that the arrangement is fair for both parties. Often the final settlement is determined in late October when prices are more firmly established.
“Estimates are that hay prices will settle in the four-to six-cents-per-pound range this year with a strong possibility that these prices will soften,” says Nibourg. “Certainly with a reduced supply, hay prices will be firmer than last year’s prices which averaged three to 3-1/2 cents per pound. Six cents appears to be the upper limit, or the tipping point, that will force producers to sell more cows rather than suffer increased production costs.
“I recently calculated some average production costs for cow-calf producers which indicated that when hay prices are at 3-1/2 cents per pound, producers would be losing about $20 per calf based on anticipated fall calf prices. It would seem highly unlikely for them to lose even more farm equity by paying too much for hay.”