For three crop marketing years hay supplies have been very tight, prices have been historically high, and to a large extent that trend will continue this year. Drought in different parts of the U.S. has continued to plague production and even with 2013/2014 being considered largely a "non-drought" year, hay production did not returned to normal. The new crop year begins with another drought, the third in four years. However, an El Niño weather pattern on the horizon may lessen the impacts and return production in much of the U.S. back into the normal range, tempering prices.
Drought Shifts Production Distribution
Across three droughts, there have been three interwoven components of drought. The first is the relationship between pasture and range conditions and hay supplies. Supplemental feeding, particularly out of season, creates short supplies and has an irreversible effect on the current crop year. The second is the impact of weather and yield, creating overall less production. The third impact is the relationship between competing crop acres and changes the correlation between feedstuffs. The location and severity of major weather events impact are not universal across crops or livestock. For example, the impacts on the cattle industry in 2011/12 were not equivalent to the impacts on the corn crop in 2012/13. Still, both were severe. The cattle herd will take years to recover, while the corn crop will need normal rainfall to rebound to historical norms. Hay is grown in all 50 states, which made it easier to find and move depending on the area threatened but has had a much larger cumulative effect as drought has affected different areas of the country, compounding stock and yield problems. In the U.S. roughly 28% of hay production comes from the top 5 producing states for all hay: Texas, California, Missouri, Kansas and South Dakota. Each of these states provide between 5%-9% each of annual hay production.
Figure 1, shows the 2000-2010 average production proportion by state --states in green represent greater than 3.75%, in yellow 2.5% to 3.75%, in red 1.5% to 2.5% and in white are states that produce less than 1.5%. Alaska and Hawaii are both under 1.5% but are not displayed here. The three other maps show the change in state proportions affected as drought moved throughout the country. So far, 2013/2014 was the closest to the ten year average. Drier conditions decreased total production substantially from the 10 year average. For comparison purposes, 2011/12 production was 13% below the ten year average, 2012/13 was down 20%, and 2013/14 was reduced 9%.
The top five alfalfa producing states make up 35% of production and include: California, South Dakota, Idaho, Iowa, and Minnesota. Over the ten year average, California grows 10% of national alfalfa production. In other hay, the top five states produce nearly 40% of all production, and center on plains states. Texas is the largest, production 13% of the national production figure, followed by Missouri 9%, Kentucky with 6%, Oklahoma 5%, and Tennessee with 5%.
USDA-NASS reported historically low stocks for both December 2012 and as of May 2013. That winter, disappearance (difference between December and May hay stocks) was calculated to be the lowest since the 1970s. Small production increases in 2013/2014 have helped aid supplies and the December 2013 hay stocks showed a significant rebound, jumping 16% year-over-year. This winter, brutally cold temperatures placed the upper Midwest in top ten coldest winters on record. Disappearance increased slightly as a result of colder temperatures, lower prices, and greater availability.
May 1, 2014 national hay stocks still showed an increase year over year, adding about 5 million tons to last May’s figure. Winter disappearance only increased about 4 million tons. Disappearance is a hard figure to draw unambiguous conclusions about. Higher disappearance means a greater number of tons was fed to animals, but this can change based on production, number of animals, and weather. Under extremely high prices, normal rations likely didn’t apply, similarly in brutal cold.
The increase in May 1 stocks (35% above 2013) sets 2014/15 up better than previous years and should provide nationally a cushion before first cuttings begin. Although, because hay is so regionalized drought stricken and states without increased stocks will still struggle before the first cutting is harvested. Figure 2 shows the percent change in hay stocks year over year from 2013 to 2014.
California is the largest drought area heading into the new hay crop marketing year. Exceptional and extreme drought conditions are unlikely to abate given the seasonality of rain on the west coast. There is very little hope that hay within the state will recover, and large amounts of hay will need to be imported from elsewhere to satisfy California’s livestock needs as well as export sales.
In recent years, hay exports historically have not slowed due to higher prices. However, trade data released May 6th, by USDA-FAS indicates first quarter exports of alfalfa and other hay were down from a year earlier. Nearly all the hay exported is shipped to five countries: Japan, South Korea, Taiwan, China and UAE. These five countries buy over 90% of all the hay shipped out of the U.S. and LMIC tracks these volumes and values on a quarterly basis. The most dramatic change in the hay exports over the last ten years is China entering our market. Up until 2009, were near zero, and their interest has vastly changed the volumes shipped overseas ever since.
In the first quarter, other hay exports are down 14% from last year and alfalfa was 12% lower. Japan, South Korea, and the UAE have all decreased their tonnage significantly for both products. Japan has decreased its alfalfa purchases by 4% and other hay by 25%, even though value per ton has decreased 4% and 7%, respectively. Similarly, South Korea has bought 20% less alfalfa and 9% less other hay. The UAE has shown the greatest losses in the first quarter with alfalfa exports decreasing 41% and other hay falling 22%. China remains an aggressive buyer, nearly doubling its buying of other hay by quantity. China is up 23% in purchases of alfalfa.
Annual hay exports have been on a rapid rise since about 2009. Last year alfalfa exports set records in every quarter, outpacing 2012 by 12% or 214 thousand metric tons. The first quarter of this year is only about 57 thousand tons shy of last year’s figure and in recent years has been the second largest quarter of the year. All the major trading partners for the U.S. in hay are in the Northern hemisphere, seasonally those countries purchase the most feed in the winter months (fourth and first quarters). A closer look at monthly trade indicates alfalfa tonnage was down by 20 thousand tons in both January and February, but March was only 16 thousand tons and more similar to figures seen in 2013. The fourth quarter usually sees the highest volume.
Other hay exports in the first quarter were much closer to levels seen in 2010 and posted a year on year decline in 2013 compared to 2012. The rise of exports in other hay has been less dramatic, gaining only about 250 thousand metric tons since 2009, but growth has been consistently upward, posting larger gains every few years interspersed with smaller years of decline. The large decline in first quarter of 2014 is unparalleled over the last ten years. However, monthly data show that similar to alfalfa hay, large losses were only had in January and February.
U.S. Production in 2014/15
Planting intentions listed in March’s Prospective Plantings report showed essentially even acreage numbers for hay compared to 2013’s. Among states showing an increase, California was listed increasing 1%, which will be difficult to achieve with the current drought conditions. Other states listing year-on-year increases include Texas and Oklahoma, which are also in dire need of moisture. The combined increase in these three states is 240 thousand more acres. Although a year-over-year increase in acres is both possible and likely, it appears that the majority of increases will need to come from states outside of these drought zones.
Yield expectations are for a steady progression towards normal. Last year yields were still below historical norms, greater than one standard deviation below the ten year average 2000-2010. However, they still increased 9% from a year before. To reach the lowest end of the normal yield, nationally, yield would have to increase 1.8% and achieving average yield would require an increase of nearly 5% from marketing year 2013/2014. It may prove difficult achieve the ten year average yield with the top two hay producing states still experiencing exceptionally dry conditions. However, four of the five highest yielding states are expecting acreage increases from the prior year which should boost the U.S. average.
Price differences regionally are expected to be great, however overall the U.S. looks to be in a situation of greater supplies than in the last four years. Tight stocks is initially pushing prices higher before hay production starts this spring, but once cutting is underway prices should decrease nationally. The true unknowns for this marketing year is largely associated with hay prices in the west receiving both pressure from lower yields and uncertainty around export demand. Historically, export demand has remained extremely strong, even in the face of high prices. Pasture and range conditions are going to play a key role in all states. Better grass conditions will increase the ability for states to export hay to other areas of the U.S. but similarly, lower grass quality as the summer progresses would drive prices higher very quickly. The supply situation remains tight and will remain so without rebounding yields and average pasture and range conditions. Table 1 has LMIC predictions for 2014/2015 marketing year. Nationally, alfalfa hay prices may slip less than other hay.