Rising hay prices threaten to reverberate up the US food chain, potentially increasing demand for already tight corn supplies, accelerating declines in cattle populations, and significantly impacting currently high beef prices.
Drought in the Northern Plains and across the West has reduced hay supplies. For farmers in the Dakotas and upper Minnesota regions, the loss of hay production is extra troubling as they watch their corn and other grain yields deteriorate, and need to decide how to feed animals through the winter. Some farmers will be forced to sell off young livestock or dairy producing cows to reduce the number of mouths to feed.
For farmers farther west, pastureland is in terrible condition and animals will need supplemental feed to maintain proper nutrition. Hay prices are even rising in places like Iowa where conditions are good, but hay supplies from the area are getting pulled out west and north.
Corn demand may increase as a result of less hay and poor pasture conditions, but ultimately that will be determined by a cattle producer’s margin. Corn prices are currently at an eight-year high amid tight supplies. If corn yields turn out better than expected, many farmers will see feeding margins improve and possibly be able to maintain their herd size. However, if corn yields fall below the USDA's reduced projection in its August WASDE report, prices could rise to the point of reducing feed demand via herd liquidation.
Cattle prices are relatively high amid surging beef demand as the economy continues to recover from the COVID pandemic. The cattle industry has been in a cyclical liquidation phase in recent years—cattle inventories fell 1% in July year over year—and a big increase in input costs, including feed, is likely to hasten ranchers’ selloffs. That in turn could reduce beef prices in the short term, but cut into supplies in the longer term.
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