The farmer suspected a connection and researchers at the Aquatic Weeds Research Unit of England's Agricultural and Food Research Council recently confirmed it. Straw was found to be as effective as hay for suppressing a wide range of algae. Barley straw proved to be the most potent algae inhibitor.
Algae flourish in sunshine and where there are phosphates in the water. The suppression of the algae, the researchers concluded, was caused by chemical(s) produced by rotting straw. But these chemical(s) require plentiful oxygen, as in a loosely packed hay bale. To inhibit algae, 10g of straw/m3 of water applied biannually is sufficient, or two or three bales/ha of water surface. Research is on-going.
Charles D. How straw in the pond keeps algal slime at bay. New Scientist, April 1991