I am going to be doing a nativity scene cake, and I want to make some hay. What can I do to make edible hay. Any Idea's

color the fondant and grate with a cheese grater (dont know what size you need for yours....)

Shredded wheat cereal

I was going to say shredded what too!

I have seen it made of Chinese noodles with melted butterscotch chocolate chips too molded to resemble hay.

Shredded wheat is great! But if you want to stay with gumpaste, you can use an extruder.
Edna

I'd suggest using chocolate clay instead of gumpaste if you use an extruder, it's softer and won't kill your hand as fast!

How about toasted coconut?

I'd go w/ shredded wheat or toasted coconut.

I used shredded wheat once for hay - I hated eating the crunchy wheat with my chocolate cake! If you're icing with buttercream you could always use grass tip #233 and just pull the bag out more so you get longer strings. You can see how it looks on my farm cake if you'd like.