Every spring, somebody tells us that opportunity has come knocking. Maybe elevators are buzzing over premiums for identity-preserved soybeans, for instance, or the talk might be about soaring prices for edible beans or some other crop.
Savvy farmers have learned that the hype often overlooks some pretty tough realities. But all the same, just because there’s hype doesn’t mean there isn’t a chance to make a buck.
Which brings us to forages for 2012. The bottom line on quality hay and other forages is, supply is tight, and demand is high. And that’s not just in Ontario, in Eastern Canada, or even North America. Any place where there’s livestock, it seems, forage markets are through the roof.
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Studies on the economics of growing quality hay often cite prices in the range of is $0.08 per pound. Anecdotally, prices this winter have hit $0.11 per pound and sometimes more. That’s a 37.5 per cent increase.
As prices for corn, soybeans and wheat have surged into a new pricing paradigm on the Chicago Board of Trade, forage buyers have had to fight for acres. In fact, they’ve had to fight hard, so for growers the pricing opportunities are real and, in historical terms, they are good.
The difference is, growing forages isn’t the same as growing grains, where the quality standards are clear and industry-wide. Quality standards in hay are very specific. They aren’t the same for horses as they are for dairy or beef cattle, and growers considering entering — or re-entering — those markets need to familiarize themselves with everything from nutrient requirements and the physical properties of the forages to some of the environmental and economic benefits of growing them.
By the numbers
The numbers involved in this market certainly favour the grower. Joel Bagg, forage specialist for the Ontario agriculture ministry, estimated in 2010 that the province has nearly 2.3 million horses and dairy and beef cattle in the province. The most often cited number for horses in Ontario is 300,000, which includes not only the horses that show up in census farm stats but those found in specialized riding and stable facilities too.
Based on that number and the fact that a horse will consume 2.0 to 2.5 per cent of its body weight in forage (dry matter) on a daily basis, that means there is an annual market for roughly 750,000 tonnes of hay just for horses. And that total is for Ontario only. The United States has more than nine million horses, with many of those located within trucking distance of Ontario and Quebec. Add to that an increasing demand for forages overseas, and the potential demand on a global basis is extraordinary.
On the cattle side, there are about 350,000 dairy cows, another 350,000 dairy heifers, plus 400,000 beef cows, 400,000 beef calves and another 450,000 cattle on feed.
According to the Ontario Forage Council (OFC), the value of forage crops in Ontario is more than $800 million, or about 10 per cent of the $8 billion total produced annually by the province’s agriculture industry.
However, the overall market potential for hay and forages has been dimmed by corn, wheat and soybeans, with a particular emphasis on corn. At $6 per bushel, corn has more than twice the income potential it did four and five years ago, and although prices for fuel, seed, inputs and land have all climbed higher, there is the perception that corn still comes out ahead.
Yet opinions differ on that notion. According to calculations by Doug Yungblut of Yungblut and Associates Consulting in Waterdown, Ont., $6 corn actually nets less than hay even at eight cents per pound (see Table 1).
But there are some even among hay producers, who beleive such numbers may need to be taken with a grain of salt. For instance, the notion of a hay crop having the same consistency across an entire field, sufficient to warrant the same premium price, is unlikely. Fritz Trauttmansdorff, a hay producer from Jerseyville, Ont., near Hamilton, contends that hay must be worth 1.3 times the price of corn in order to be competitive. So if corn is $6 per bushel and $240 per tonne, hay must be $312 per tonne or 12.5 cents per pound to compete.
“What I put in there is the risk factor,” says Trauttmansdorff. “Basically, you can get about 8,000 pounds of corn off a field — if you do a good job and get 160 bushels — and you get the same with hay, if you run a good hay field and know what you’re doing. So it really comes down to costs, marketing, nutrient requirements and risk. And if you take all of those things into consideration, the value needs to be higher than corn.”
Know the markets
The challenge is the disconnect between “forages” and “quality forages.” Indeed, it’s a challenge that even the most experienced forage growers wrestle with.
So, for instance, Ontario’s Joel Bagg is in favour of growers going after the big prices in today’s forage market, he also puts a qualifier on that advice. Markets for dairy and beef cattle forages are relatively strong too, so only go after the premium horse market if you have hay that meets its quality specs.
Meeting horse-quality takes skills that cannot be underestimated, Bagg says.
Those skills start with knowing exactly what the markets want. Bagg calls it the first rule of marketing: “Identify the product your customer wants to buy, and then produce that product.”
“Certainly, if you want to be in that premium hay market, you have to meet those standards as opposed to just having some surplus that you want to move,” says Bagg. “If you want to get the premium price, it really has to be the kind of hay — and the bale type — that the customer wants.”
Another factor that is often overlooked is the feed requirement, particularly where the health of a cow versus a horse is involved. As a general rule in dairy cattle, producers are interested primarily in crude protein and Relative Feed Value (RFV). In most cases, the higher the values, the better the quality.
But horses have nutritional requirements that differ based on their size and purpose and also on their physiological differences. Crude protein requirements for horses are considerably lower (approaching 10 per cent, compared to the upper teens or even 20 per cent for hay for dairy cattle), and their nutritional requirements also vary on their activity level.
A racehorse will have a different nutritional demand compared to an idle horse or a young horse.
As well, horses with their single stomachs cannot tolerate weeds, dust and mould the same way as a cow with its ruminant digestive system.
“When you think about it, when we feed ruminants, we compost all of that stuff — the moulds, any toxins that are in weeds — they go into this big bacteria compost called the rumen,” says Bagg. “But horses have the stomach up front, and the fermentation happens in the lower gut, so they don’t have that fermentation happening early in the digestive system to do that detoxification.”
Hence the need for hay that is green and dry and free from weeds, mould or dust. Horses can develop chronic coughs, wheezing and even colic as a result of eating wet or mouldy hay.
Price discovery
On the numbers side, there is also the fact that forages aren’t listed on the Chicago Board of Trade, so it’s harder to know what’s a fair price. Instead, the price for a bale of hay is whatever the individual is willing to pay for it, based on its quality and the type of animal involved.
That may be balanced though by the good news that growers of quality hay and forages are in demand. Despite the pricing uncertainties, word is that all segments of the market — dairy cows, heifers and horses — are hungry. The inventories one might expect in early spring are not there, neither in Canada or in the U.S.
“Typically, there’s a fair amount of hay available for sale in March, and people are anxious to sell because they want to empty their storage before June,” says Bagg. “But I’m not seeing those inventories out there, and you can’t phone the elevator and find out what the Chicago price is. A lot of hay dealers are working with confidential or proprietary information.”
Barry Robinson, district sales manager with Maple Seed in Lindsay, Ont., also acknowledges the short supplies and increased demand for quality hay, and he points to the diversion of hay acres into grains and oilseeds as part of the cause.
“Even livestock producers have reduced their acreages of forage because they want to grow some of the corn and soybeans,” says Robinson, echoing Bagg’s comment about the shortage of excess forage in the system. “The other thing is that at the price of forages, we can’t afford not to store them properly. We need to treat forages like any other crop, where we need to be sure that we’re getting good yield and consistency, and it needs to be stored properly.”
The benefits and advantages
Beyond the raw pricess and market demand, forages provide other advantages too. One of those benefits is the value of the N credit that goes with a forage crop, as well as the positive effect on soil health. The long taproot on a forage crop can run several feet into the soil profile and can have a beneficial effect on soil stability (including biological activity), porosity, root health and nutrient availability.
Overall, a forage crop can boost water retention and reduce structure breakdown, meaning soils will respond better to weather extremes, including drier-than-average conditions. Best of all, alfalfa as a forage crop provides a $70 N credit to the subsequent corn crop, along with a five to 20 per cent yield increase. At current market pricing, that translates to an additional $48 to $192 per acre (based on 160 bu./ac. yield). Typically, those benefits also last into a second year, albeit at lower levels.
Despite some of the disadvantages of growing forages, such as high initial equipment costs and a narrower window for harvest (compared to grains and oilseeds), there are opportunities for anyone to enter the market. In fact, says Doug Yungblut, it is possible for those growers who want to enter the market to do so, even without actually growing forages.
“There are many custom hay guys around, and you can slide some hay into your rotation, either on your land or you can get into a deal where you’re swapping some land with a grower who’s growing some forages into your rotation,” says Yungblut. “There’s no question, there are huge benefits from a soil standpoint and from a number of different aspects, with benefits that last quite a while.” CG
