Structure and size of the market

Hay is the second largest crop by seeded area in Canada, after wheat. Almost all hay is grown on beef or dairy farms. Typically hay sold is surplus to needs. Only a small proportion of the hay that is made ever enters commercial channels. In diversified livestock and crop farms, hay is usually seeded as part of a two- to four-year crop rotation. Hay can be an advantageous ‘break’ crop, as it restores soil structure, and breaks disease cycles.

The domestic and, to some extent, the U.S. hay market is irregular, unregulated and non-standardized. The total market size is unknown. It is estimated that between 10 and 15% (2.5 –3.5 million tonnes) of the hay grown is sold off-farm. Exports of processed hay are quantified but represent only a very small percentage of the total amount of hay grown in Canada.

Most of the processed hay goes to Japan, as compressed hay. The U.S. is the largest supplier, with Australia and Canada following. In 2005, Japan imported over 1.5 million tonnes of compressed hay from the U.S., about .5 million tonnes from Australia, and 252,774 tonnes from Canada (10.8 per cent of total requirements). Hay exports were up again in 2006. Canada’s main customers for all types of processed hay were Japan, the U.S. and China. Canada exported a total of about 560,000 tonnes of hay in 2005.

Table 1: Distribution hay production by province

Statistics Canada 2006-Cat. 22-002-XIB; Census of Agriculture 2001 Table 95F0301XIE

Market Characteristics

The main market for hay is individual farmers. Hay is bulky, and requires special handling equipment. In addition, it is difficult to grade, highly variable in quality and can be a challenge to harvest since quality is highly dependent upon weather conditions. Most hay is fed on-farm to dairy cattle, beef cattle, horses and sheep. Hay that is sold off the farm most often is sold directly from one individual farmer to another and is not transported more than a farm tractor hauling distance.

It is rare for an entire hay crop to come off and be suitable for a single market. Standing hay loses quality quickly in season, and a portion of the crop may suffer weather damage. A grower must have markets to sell lower quality hay in order to maximize sale revenues on the entire hay crop.

Hay markets fall into two broad categories, domestic and export. These are described in more detail in the following subsections.

Domestic hay sales - most domestic hay sales are made directly to the user. Little is sold through dealers, auctions or other intermediaries. Transportation is of paramount concern. Users include dairy farms, cow-calf operations, beef feeders (backgrounders and finishers), and horse farms of all types. Each user has a demand for specific qualities and how it is ‘packaged.’ Pricing is usually determined by direct negotiation.

Dairy farms - most dairy farms grow their own forages. Adverse weather conditions may create a local demand for dairy hay. The market for this type of hay is relatively small, but it is a high-value market. The dairy industry generally requires alfalfa hay, or mixed hay being a predominantly alfalfa mixture. Non-lactating dairy cattle can use lower quality hay containing little or no alfalfa. High-quality dairy hay has a Relative Feed Value of 150 (see Key Quality Issues below) or greater, with protein contents of 18 to 22%. Dairies may prefer any type of bale, depending on the feeding system and equipment available.

Growers in Alberta and interior British Columbia supply a significant demand for high-quality dairy hay in the lower mainland of B.C.

Beef Market - the beef-cow hay market in general requires lower-quality hay, and is quite price-sensitive. However, there are considerable differences in feed quality requirements within this market, varying from low-quality hay as a fibre source to higher quality hay for feeding replacement heifers, cows late in pregnancy, or cows lacking condition. It is not economical to truck this low-value hay any great distance. Location determines the market.

Feeder cattle operations may be in the market for higher-quality timothy and other grasses, or alfalfa/grass mixes. Again, these tend to be local markets since transportation costs can quickly become prohibitive. Beef hay buyers generally prefer large round bales.

Horse Market - the demand for horse hay is diverse including a wide variety of end users such as hobby farmers with a few horses, riding stables, horse breeders and racing facilities.

The market for horse hay is difficult to define and varies somewhat from buyer to buyer. However, quality requirements for this market generally are for a clean, medium quality, grassy hay. Customers may have additional requirements such as certain stem coarseness, presence of fescues or legumes, and protein levels. Timothy as the predominant species is preferred in most markets.

The horse industry requires small square bales. Horse hay buyers are discriminating, and usually will pay top prices. If a certain type or quality of hay fits the requirement, it can be transported considerable distances.

Processed Forage Market - the processed forage market refers to a number of products including dehydrated alfalfa pellets or suncure alfalfa pellets, which are produced mainly in Saskatchewan. Suncure alfalfa and suncure mixed cubes are produced mainly in Alberta. Dehydrated alfalfa is made from chopped alfalfa hauled directly from the field. Producers contract acreage to a processor. The processor uses specialized equipment to harvest and transport the crop. Growers wanting to access this market must be located close to a processing facility.

Processors use baled alfalfa for the production of suncure pellets and cubes. Alfalfa (or mixed hay) is field cured and round baled. Growers may contract acreage or sell on the spot market. Processors sometimes advertise in the farm press to obtain suitable hay. Quality requirements for suncure alfalfa products are fine stems, green colour, and medium-to- high protein levels (16% plus).

Double compressed hay production for sale into Pacific Rim markets is another option.

The term double compressed hay can refer to various forage products compressed into tightly bound, high density, low moisture bales. The bales are compressed to double the density of baled hay as it comes off the field. In Western Canada, timothy hay is almost exclusively used for compressed hay. Growers typically supply this market under contract to a processor. Terms of contract are on a negotiated basis depending on quality and demand.

Export markets

Dairy hay - growers with dairy-quality alfalfa hay may find it profitable to enter the lucrative U.S. dairy markets, depending on transportation costs. U.S. markets are located in the Great Lake States, Corn Belt, and the Southern Plains. The main considerations of these markets are transportation costs and the ability to provide the high quality hay that these markets demand. Exports of dairy hay are usually arranged through a hay broker.

Horse hay - growers can sell timothy hay or timothy alfalfa mixed hay to horse markets in the U.S. The horse market is concentrated in the Southeastern U.S, thus it generally requires the provision of double-compressed products to affordably ship to those markets. However, this market is very demanding and difficult to access.

Key Changes or Recent Issues

The fastest growing segment of the hay business is the double-compressed export market. Timothy forage grows extremely well under Canadian growing conditions and is in demand for roughage in Japan and other Pacific Rim countries. The export market for baled forage has expanded rapidly in Western Canada. Japan is the largest customer, importing more than 80% of Canada’s exported compressed-bale hay total.

Production of compressed bales has almost doubled from 1998 to 2005. There are currently eight plants in operation in Alberta, three in Saskatchewan, three in Manitoba, and one company operating in the Maritime Provinces.

In contrast, the market for processed alfalfa is declining. Processed alfalfa is a protein supplement product and decreasing prices for protein sources have put pressure on this segment of the hay industry.

Price Discovery

There is no well-developed price discovery mechanism in hay markets. Demand is variable in North America and is mostly driven by weather factors in major beef and dairy producing areas. Cattle numbers have some bearing on hay prices but weather, especially drought, is the predominant factor.

Export prices in the Pacific Rim are set by the importers. These markets are quality driven, and prices are sufficient to attract product that meets quality criteria.

Key Quality Issues

Relative Feed Quality (RFQ) and Relative Feed Value (RFV) are methods of evaluating hay quality used mainly in dairy hay markets. RFV is the traditional method, and is calculated from the Acid Detergent Fibre (ADF) and Neutral Detergent Fibre (NDF) levels. It disregards the protein content and also the digestibility of the NDF fraction (NDF = ADF + Lignin + Hemicellulose). There is a wide variation in the digestibility of the NDF fraction due to such things as stage of maturity, leaf loss, crop moisture availability, and temperature during the growing season. While RFV and RFQ are generally closely co-related, RFQ uses the digestibility of the protein, fat, non-fiber carbohydrate, and NDF to define the feed quality. RFQ provides a more accurate assessment of forage, and will likely be the system used in the future.

General Quality Requirements

Every livestock market has different quality requirements and methods of determining quality. Quality measurements include:

• Texture (“hardness” of the hay);
• Stage of maturity;
• Leaf attachment;
• Freedom from mould and dust;
• Colour; and
• Freedom from weeds.

Horse Market - there are many different preferences within the horse market, dependent on the type of horse and its energy requirements. There are markets for everything from very mature, pure grass hay to regrowth grass/alfalfa mix. Hay is usually judged using a visual assessment rather than a feed analysis.

Horse hay quality usually revolves around the same good colour and softness, which refers to its palatability (i.e. see timothy requirements for Japan below). There is zero tolerance for mould and dust. Packaging preference is for small square bales (75-80 lbs.), standard tie, with consistent flake size and weight. The horse industry also consumes a significant amount of cubed hay.

The market is changing towards bales with higher density (approximately 25 lbs/cu.ft. compacted). Bales should be firm, uniform, and of the weight preferred by the customer.

The lower end of the horse hay market is price sensitive.

Beef Market - buyers want some indication of protein or some other measure of feed quality. Palatability and its indicators such as colour, leafiness and leaf-attachment are important. Preference is for grass/legume mixtures. Large round bales are usually preferred.

Export Markets

The high cost of transportation to reach distant markets drives processors’ demands for high-quality forages. The Japanese hay market has strict quality criteria: long, leafy stems with long heads, a good green color and a minimum of brown leaves. Hay must be free of mould, weeds, soil, quack grass, wheat grasses, barley and other contaminants.

Export certification is required for baled forages shipped to Japan. The biggest concern is the threat that the Hessian fly poses to the Japanese rice crop. Japan prohibits the importation of soil or plant species that can be infested with the Hessian fly larva or eggs. Barley, wheat, rye, wheat grasses and quack grass are potential host materials for the Hessian fly. They are considered prohibited material when shipping baled forages to Japan, Korea and Taiwan.

Baled forages are usually inspected by buyers at the processing plant. They are also visually inspected by an Agriculture and Agri-Food Canada inspector. Shipments that are certified as free of prohibited material are allowed access into Japan. Upon arrival in Japan, Japanese inspectors also make a visual inspection. Shipments found to have prohibited material are refused entry to the country.

Prohibited materials include cereals, quack grass, crested wheatgrass, intermediate wheatgrass and wild barley. The presence of other insects or disease could also result in the rejection of hay for export.

Other quality criteria include:

• Colour with a good green preferred and light green (celery colour); some sun bleach is acceptable.
• Moisture content must be 12% or less, and uniform.
• There is no standard for crude protein or fibre.
• Hay must be leafy, with good leaf attachment.

Timothy hay exports markets are driven by four key considerations: foreign customer preferences; quality specifications; product form; and export requirements. To supply hay to the international market, Canadian growers should first contact a number of hay processors, thoroughly familiarize themselves with what the market demands, and then choose a processor to do business with.

Risk Factors

Hay is easy to grow, and with a good management regime is not usually susceptible to disease or severe damage from insects. The greatest threat to the grower on unirrigated land is drought. However drought also creates market opportunities.

Market risk is a concern within most livestock markets as the hay supply and price vary considerably from year to year. By comparison the horse market is quite steady

Other

A significant part of the domestic hay market is supplying horses. The size of this market is not well quantified. For example, it is agreed that the census of agriculture only captures the numbers of horses on census farms. It is significant to note that the Canadian Equestrian Association published a report in 1998 that found there are an estimated 886,000 horses in Canada, double the Census numbers. The report also indicated that numbers were on the rise. However, an Ontario report by Wright and Cation “1996 Horse Industry Report”, found the horse numbers in Ontario to be much higher, 325,000 as compared to 189,000 in the Canadian Equestrian Association study. The actual Canadian horse population may well be over one million. To put this in perspective, the number of dairy cows in Canada in 2006 was 1,048,000. There is a strong likelihood that the number of horses in Canada today is greater than the number of dairy cows.

Closing Comments

Overall the hay market is variable, with end use and associated quality requirements being the main defining elements of each market. Markets can be either domestic or overseas. Most overseas markets for long hay are accessed through cooperation with a processing or marketing company.

Because of the informal nature of marketing hay, it is critical to develop a network of information about local markets and what other producers may be doing in your area. This network is invaluable, as it will often be the only marketing information available.

The single most important factor when considering a market for hay will be the cost of transportation. As hay is a bulky, low-value product, transportation costs can rapidly consume any profit in a sale. Hay packaging is an important way to reduce trucking costs.

Each type of hay packaging has advantages and disadvantages. Soft core bales can be safely baled at relatively high moisture contents, but have less structural density and generally lower weight than hard-core round bales. Small square bales are labour intensive, and vary in density. Medium and large square bales have the greatest density of all bale types. As well they stack and ship easily. The availability of large square balers is limited in some areas, and moisture content of hay must be low to avoid spoilage.

In summary, know what the buyer wants. Quality, hay type, packaging, payment options, transportation costs and delivery requirements are all aspects of a sale that need to be communicated from the buyer to the seller.

Stay current, learn as much as possible about the marketing environment locally, nationally and internationally. Know about the marketing options, when, where and to whom. Know where your hay fits, and communicate with potential buyers well in advance of your selling date. In order to successfully market and maximize profits when selling hay, a number of critical success factors must be addressed. These factors include transportation, quality, customer needs and markets.