Alfalfa Hay Prices Soaring on Limited Supplies, Renewed Dairy Demand

February 8, 2011 03:50 PM

2011 prices could reach second-highest level ever

 Alfalfa Tony Souza 4 09 008   Copy
Driven by limited carryover supplies and renewed demand from California dairies, alfalfa hay is soaring to new price levels and this year’s crop could reach its second-highest prices ever, a hay market expert said today at World Ag Expo in Tulare, Calif.
“I’m bullish on hay prices because of the lower acreage we’re going to see in the West, the small carryover from 2010 into 2011, and the outlook for stronger milk prices in the $17.50 to $18/cwt. range in the next few months,” said Seth Hoyt, whose hay market analyses and insights are widely followed.
Hoyt is projecting alfalfa hay from the Imperial Valley, a major alfalfa producing area in Southern California, will reach $190-$200/ton on first cutting, which will begin late this month. In California’s Central Valley, where alfalfa growers will harvest their first crop cutting in early April, Hoyt predicts prices of $220-$230/ton F.O.B.
In Utah, another major hay producer, Hoyt foresees first-cutting prices at $170-$180/ton, and  between $180- $200/ton in Idaho and Washington.
“We haven’t seen those kinds of prices since 2008,” said Hoyt. “They would be the second-highest prices ever if that happens.”
Alfalfa hay has risen by $50/ton since November 2010, he added.
Improving demand for milk powder, butter, whey and cheese, especially in Southeast Asia, is helping boost milk prices. “Fifty percent of the powder being produced in the U.S. is again being exported,” Hoyt said. “Even as the U.S. economy is improving, other places in the world are rebounding even more quickly.”
In fact, Hoyt foresees strong competition between U.S. dairies and the export market for alfalfa hay.
“What we saw in 2010, because of the financial losses in the dairy industry and the strong demand for export hay, was that exporters bought more hay and were outbidding and more competitive than dairy buyers,” he said. “What it looks like for 2011 is the reverse, because of the higher milk prices and the more money dairies will have, at least for short-term purchases. They’ll be more competitive than the exporters.”
Last week, rolled corn cost Tulare-area dairies $288/ton, while top alfalfa was selling for $240-$256/ton. As recently as the second quarter of 2010, the cost of milk production in California dropped to $13.65/cwt., Hoyt said. But California dairy costs are rising as feed prices increase and today fall in the $15-$16/cwt. range.
“At those levels, the amount of corn in dairy rations will decline,” Hoyt said.
Because of high corn prices, the yellow-eared crop will displace some alfalfa acreage in 2011. Hoyt said the “red hot wheat market” and cotton, at its highest price levels since the Civil War, may also persuade growers to forego alfalfa plantings for those crops in 2011. He forecasts alfalfa acreage to decrease 10-15% in Washington and Idaho, and 5% in California, Utah and Arizona. He expects Nevada’s 2011 alfalfa acreage to be unchanged.
China is also a factor in the hay market. “The Chinese dairy industry has grown tremendously and they need Western hay,” Hoyt said. “They’re tough on price, but if they don’t buy from us, from where will they buy? It will be interesting to see what China does.”
With the strong market for alfalfa in 2011, Hoyt looks for considerably increased plantings in the fall of 2011 and more acres in production in 2012. “I look for the market to be lower, but I don’t look for it to take a drastic drop unless milk prices again go down to unprofitable levels, “ he said. “If milk prices hold at profitable levels, I think the hay market in 2012 will be lower than 2011 but not drastically lower. Milk prices will be key.”

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