Well, good evening, everybody.
Just a forewarning, three of the four quiz questions
will come from the economic portion of this presentation.
So you better take good notes because I
know this is everybody's favorite part of all this.
So I'm going to be providing the 2021 Utah hay outlook.
And this is going to be based on a lot of research
we've done kind of looking at how we predict hay markets.
And so I'm going to be using a model that we've
built to help do that.
And so with that, what we did is we identified key drivers.
So we wanted to say, OK Utah hay prices,
we know that we don't live in a vacuum
and there's going to be key drivers that really
impact what we see for prices.
So we're going to identify those key drivers
and then we're going to estimate that 2021 Utah hay price.
Just like any forecast that can change dramatically
with any major event.
So it's going to be the best representation based
on the data that I have available.
So when we look at these key drivers, this is what we found.
So you can see here there's five key variables that
will explain 90% of the change in Utah hay prices.
So when we look at some of these.
So the seven Western states hay stocks annual change.
So the supply within our region.
I'm looking at that national corn price exports,
which is a key demand driver.
So the national milk price and feeder cattle price.
So these are the five key drivers of Utah hay prices.
And those numbers next to that in that middle column
is simply the impact that variable
has on Utah hay prices.
So what we want to do is estimate the change
in each one of those, then we multiply it
by what we call that coefficient or just the impact
and that will give us the change in 2021 prices
that we can predict based on 2020 prices.
So that's where we want to end up
when this is all said and done.
So when we look at May hay stocks.
So this was May 1st of 2020, so you can
see this is the actual stocks.
And if we look at this graph, it doesn't really
give us a ton of information, we need
we need to decide what's it relative to.
So when we look at how it has changed,
so this is the change from 2019 to 2020.
So you can see besides up there in the far Northwest,
everything else had a positive increase in hay stocks
from 2019 to 2020, 23% change in Nevada, 7% in Utah,
23% in Idaho.
So we saw hay stocks increase across that based on May 1st.
When we look at December hay stocks,
we want to look at December hay stocks
and unfortunately USDA hasn't released the official 2020
numbers.
So we're doing a little interpolation here.
But you can see here, here's the trend from 2015
to 2020 December hay stock.
So looking at that, we saw that reduction from 2016 to 2019
in those stocks, and then to 2020 we saw that rise.
And so we're going to use that same trend to kind of predict
where we're going to be in 2021, that slight change in hay
stocks.
So based on that, we're going to show that slight increase
and so we're predicting that those hay stocks will increase
and thus decrease that price.
So supply, I think of just standard supply
and demand, as supply increases price drops or increasing
supply and decreasing price roughly $19.
So just an estimate.
So that's our first key driver of what's
going to happen as we go through 2021.
Next thing you want to look at is corn prices.
And I'm sure many of you have been
following corn prices lately.
And when we look at that, you can see it,
corn prices actually have a high,
that's a pretty big rig coefficient or big impact that
has on hay prices.
So we want to watch that pretty close.
When we look at these are the futures contract as of
just the other day.
These may have changed since then but at that point in time,
you know that March 2021, May 2021, you
can see those futures contracts.
And we're bumping up against that $5 level which we
haven't seen in quite a while.
When we compare that to 2020, we're
$1 difference, $0.93, $0.88, $0.55,
so dramatically different from where we were a year ago.
So corn price is projected to be quite a bit higher in 2021.
So with that, we're projecting just an average $0.75 increase.
So that should drive up hay prices
by 8 and 1/2 bucks, $8.45.
Next one we want to look at is hay exports.
Now, hay exports is a tough one.
The data on this is sometimes difficult to find.
And you can see here, it has a smaller impact,
that number's quite a bit smaller.
But it's still a significant driver of those prices.
And so when we look at this is coming out
as of 2019, alfalfa hay in that darker blue,
other hay in the lighter.
But you can see that alfalfa hay has continued to increase.
There's been a positive trend since 2007 seven in hay exports
and projecting that to increase.
When we look at this a little closer
here, so these are when you look at some of the export data
it really separates it out by your five major trading
partners.
And within the alfalfa industry, those five
are Japan China, South Korea, Saudi Arabia,
United Arab Emirates.
Those are our five key trading partners.
And you can see China has the largest trading
relationship with us.
In 2019, so blue would be January through November
of 2019.
And the reason I did that is to compare January
through November 2020.
So to compare apples to apples.
We can look at compare that blue to the green.
So 2020, we saw dramatic amount of increase
in alfalfa hay exports to China.
When we look at those other four trading partners,
slight decrease in Japan, slight decrease, slight
decrease in the other ones.
China absorb a lot of that.
But when we look at that as an aggregate, so we will see that.
And so once again, just highlighting that change
that occurred over from January 2019 through November 2019
and then January 2020 November 2020.
So we look at this on a percentage change.
So blue in total, you can see that percentage change,
there's hardly been any change over the past year.
We saw that reduction in overall exports,
and so I'm projecting that 2021 is going
to have very slight change.
So I'm not even going to show any change in hay exports.
But as soon as I say that, tomorrow something
will happen in that could change.
And so just in your mind just think, OK,
so if I read an article that's saying,
hay exports have increased, know that should increase
the price of hay here in Utah.
But that's based on the data that I have.
That's what I'm projecting.
So milk prices.
Milk prices.
So for every change percent change in milk,
we can also see that change.
When we look at milk, we've seen a lot
of change, a lot of volatility as we've
gone through this just this past even past few months
in milk prices.
So this is February, 2001 class III milk prices,
saw that dramatic change that happened within those milk
prices.
When we look at this on a comparing those.
So this is just looking at class III.
So January, it's relatively has not
changed much but when we look at February, April, June,
we'll see some dramatic changes.
As we go out later in the year, of course,
we're going to see that difference is not as great.
But when we look at those earlier future months,
we're seeing that change in milk prices.
So based on that information, we're looking at a $0.47 change
based on those future prices.
So 69, round that up to just basically a dollar,
should increase hay prices by a dollar based on that increase
in milk prices.
OK.
So finally, when we look at this last one,
which would be at our feeder cattle.
The driver of that has so feeder cattle, right?
So this is our key impact here we
want to look at that national feeder cattle price.
And we're looking at that on an annual change.
So when we look at that on an annual basis,
we're going to look, again, once again at these futures
contracts.
Now, remember some of you may be wondering,
well, why aren't we use in Utah prices?
And we want to use national prices just because it
takes out a lot of that basis or that localized information
and really kind of just puts it on a level playing field.
So when we look at some of these futures prices,
so this is January 2021 through November 2021,
we can see a slight reduction from 2020.
So these feeder cattle future prices
have really not moved and reduced since last year.
So they're not where we want them
to be as this is driving a lot of cow calf prices.
So we're showing a slight reduction in those prices.
So using that $10 difference, we're showing that feeder
cattle price annual change is going to reduce hay prices
by $4 and $0.10.
So when we put this all together,
so this is what we wanted to end up with,
we started with a blank table.
So now we can add back in these.
So we have our change from hay stocks, our supply,
corn price, which is going to drive that hay price
exports, which is a demand driver,
milk price demand driver then that feeder cattle which
is also a demand driver, we're looking at all that change.
So when we look at that, what USDA,
now, we know that there's a lot of variation
from North to South, and within the state of Utah.
So this is just an average across the state.
So you can look at and say, well, I know in my region
that price is going to be a lot different.
So when we look at that, that 180,
which was our 2020 average price and then
we're going to reduce that.
The sum of all those is going to be $14.44.
So we're going to reduce that roughly by $15.
So the projected price for 2021 is
projected to be less than what we saw in 2020, $1.66, 166,
I apologize.
Now, take that with a grain of salt because as I said earlier,
this can change quite rapidly.
As we looked at 2020 and what could
happen in one year, each one of these variables.
But the key here is to look at the sign of these impacts,
increase in supply should decrease price.
As corn price rises, it should increase
our hay price exports, which is a demand driver,
increases demand as exports increases, increases
price, milk price, increase price, and feeder,
these are demand drivers that will increase price.
So when you put that economist hat
on as you're reading market updates or whatnot,
you should be able to tell yourself
based on these prices, what I'm seeing
that's the impact it should have on what we're seeing.
So when we look at that, key drivers, that supply side,
demand side, estimated price.
So one of the other topics that we're supposed to touch on
was capturing market, increasing profitability through marketing
opportunities.
And within alfalfa, that's extremely difficult
just because there's no established forwards contract.
And so the way to increase that profitability are two-fold,
one increase quality, which will increase your overall selling
price, and decrease cost.
2021 could be a year that you should
analyze every operating cost that's
going into your operation.
If there's any way to cut costs, it
might be a good opportunity to do that.
On the quality side, we've seen that premium
that comes with quality and that is a constant.
So if you can increase the quality of your alfalfa,
that will increase the overall price
and should increase that overall profit margin
that you would hope to get for that alfalfa.
So with that as always.
Please you can contact me any time.
Here's my email, best way to contact me.