Tight supply driving almost stable hay prices up again

By DAN WHEAT

Capital Press

Posted: Thursday, September 06, 2012 12:00 PM

WILMINGTON, Calif. — U.S. hay exporters, the vast majority of whom are on the West Coast, were just beginning to see stability in their marketplace when the Midwest drought upset it again.

Hay prices, which had been so high they were hurting exports, had dropped to more sustainable levels with greater inventory but the drought is tightening supply and pushing prices upward again, says Nicholas Gombos, vice president of supply chain and logistics for ACX Pacific Northwest, in Wilmington.

It’s all unsettling, he said, because the federal ethanol mandate already was keeping prices high and bringing the long-term survivability of U.S. hay exports into question.

The Obama administration and Congress ended ethanol subsidies but did not end the mandate for fuel to have a 10 percent ethanol blend, Gombos said. Fuel prices are high because ethanol costs a lot to produce, he said. High fuel prices make commodities more costly and ethanol takes 40 percent of the nation’s corn crop, keeping the price of wheat, hay and other commodities high, he said.

“Our industry will never be the same because we have to compete with unsustainable government mandates — ethanol mandates that have pushed our corn production to the brink,” Gombos said.

“There is so much pressure that the drought or any hiccup in supply creates dramatic responses in the marketplace. It’s immoral,” he said. “We should be using 40 percent of corn as food. How can I as a private business compete against government?”

U.S. hay exporters are known for quality and consistent supply but they are losing their reputation as a stable supply chain, Gombos said. Odds of losing overseas buyers are increasing as those buyers look to other countries for hay and other feed, he said.

With price swings of more than $100 a ton, the issue is less supply and demand than “influences we can’t control like the ethanol mandate and the weather,” he said.

West Coast prices are about $230 per ton for premium dairy hay and $150 a ton for rained-on, dry cow hay. That’s lower than 2011 peaks but edging up. About 30 percent of the uptick is real increase in demand and 70 percent is speculation, Gombos said.

Farmers hold onto hay longer and speculate that prices will go up, particularly with increased demand for hay in the Midwest because of the drought, he said.

“Typically, we source from Montana, Colorado and Wyoming, but we’ve seen significant demand from Midwestern users pulling from those states and some pressure on Idaho and Utah,” he said.

Hay growers think the drought will drive the price of grain high enough that it will be used less for feed, increasing demand for hay even more, he said.

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