Freight costs in some cases are doubling the cost of hay for dairies far from growing regions.
**Extended comments are highlighted in blue.
Reduced acreage and weather add up to record prices
Look for extremely tight supplies to keep pressure on the price of high-quality dairy hay in many parts of the country well into 2012.
A double whammy of fewer acres planted to alfalfa and weather that stymied production—drought in the South and an unusually cold and wet early season in the North—help explain how prices reached current levels.
The season-long drought that severely crimped alfalfa production and sent prices into the $250 to $300 per ton range has also limited wheat and corn silage production and curtailed the cotton crop in Texas, New Mexico and other Southern Plains states. As of early August, whole cottonseed reportedly topped $400 per ton in some areas.
"With $7 to $8 corn, $300 hay, $50 to $60 corn silage and $400 to $500 cottonseed, producers need $20-plus milk year-round," says Robert Hagevoort, an Extension dairy specialist at New Mexico State University. "The futures prices don’t indicate that’s where we’re going."
Trucking in alfalfa from other regions brings its own challenges, says Ellen Jordan, a dairy specialist with Texas AgriLife Extension Service. The drought has decimated alfalfa production in Kansas, Oklahoma and southern Colorado, traditional supply areas for Texas. "Once you start hauling alfalfa greater distances, freight costs can easily increase the price of a ton of hay to the point where it may no longer be feasible to have it in the ration," Jordan says.
In California, where dairy producers were paying $300 per ton and up for high-end alfalfa as of early August, alfalfa acreage this year is down 20% from 2010, notes Norman Beach, vice president of the San Joaquin Valley Hay Growers Association. "That’s on top of the big drop in plantings we had in 2010," he says.
Compounding the acreage shortfall, cool, wet weather delayed the start of alfalfa harvest not just in California but also in Nevada and Oregon, major supply regions for California dairies. "Most growers in those three states will lose at least one cutting this year," Beach says.
Even so, Beach believes alfalfa prices may have topped out for the year. The key factor: Milk prices, favorable in recent months, will eventually drop. "Our dairy customers tell us that with a milk price of $19 to $20 per cwt., they can pay $300 per ton for alfalfa," he says. "If the milk price falls any lower, they just can’t make it work."
But the hay price will fall only so far, he cautions. "There’s just not enough hay out there to completely stall the market," he says. "The only thing that is going to make the [alfalfa] price back off significantly is an increase in plantings. At the very earliest, if we see a drop-off, it won’t be until May or June of next year as the new crop comes on."
Similar circumstances have led to a doubling of alfalfa hay prices in Idaho ($225 per ton in midsummer). Alfalfa plantings in the state are down nearly 200,000 acres this year compared to 2010, and unusually cool weather through June crimped first-crop yields and pushed back cutting schedules for many growers. "It all adds up to being a bunch short," says Glenn Shewmaker, University of Idaho Extension forage specialist.
Long-term, he looks for this year’s high prices to spark a recovery in alfalfa acreage next year, taking some pressure off supply and prices. "At $200 per ton, alfalfa can compete with corn, wheat and potatoes," he says. "If prices remain this high for a while, we will recover most of the acres we lost."
In the meantime, Shewmaker says, alfalfa prices will stay strong as long as dairy producers continue aggressively pursuing limited supplies. "Once they’re able to get all the alfalfa they need, they’ll be in a position to negotiate and that should ease the pressure on price," he says. "I don’t know that it will drop all that much, but I don’t know that it will increase much either."
Prospects for a larger than normal supply of corn silage in the state could hold alfalfa prices in check. "With the cool, wet weather we’ve had, a lot of corn here is very late in maturing and isn’t likely to dry down very well. A lot of that could get put up as corn silage, which dairy producers can use as a substitute for alfalfa in their rations," Shewmaker says.
- September 2011