Short-term demand is waning, but export market remains strong
Sky-high alfalfa prices in 2014 sent dairy producers looking for feed replacements. Weaker demand for
alfalfa has now caught up to prices. The going rate for supreme quality hay delivered in central California is $250 to $290 per ton, down from 2014’s peak of $339, said hay market expert Seth Hoyt at the World Ag Expo in Tulare, Calif.
The average amount of alfalfa hay fed to California milk cows dropped to 7 lb. per cow per day in 2014, down from 12.5 lb. in 2004, Hoyt said. California dairies are typically the largest market for the West’s alfalfa hay, but now, many dairies are feeding more economical wheat straw.
Prices have also plunged because of the labor disputes at West Coast ports that backed up inventory; a stronger dollar, making U.S. products more expensive to export; and declining demand from China and the United Arab Emirates.
Alfalfa production in the West will likely drop due to the drought and uncertain water supplies. “But as long as growers in other states are producing alfalfa hay, the drought won’t have as big an influence,” Hoyt said.
Alfalfa prices could rebound if rain hampers yields and quality. But, unlike 2014, “alfalfa producers are not going to go for tonnage early,” Hoyt said. “This year, they’re going to go for quality. That’s where the demand is.”
Despite a softer near-term price outlook, alfalfa hay prices are expected to remain near historically high levels as global demand continues to increase, according to a recent Rabobank Food and Agribusiness Research and Advisory group (FAR) report.
Western U.S. hay prices have nearly doubled in the past 10 years, up from an average of $100 per ton, Rabobank notes. The trend is expected to hold, despite potential challenges with shipping, product testing and the ongoing drought in California.
China’s rapid population growth is a primary price influencer, said Rabobank-FAR analysts Vernon Crowder and James Williamson.
“When feeding one-seventh of the world’s population, minor changes have big effects,” Williamson said. “Following the melamine scandal in 2008, China started importing large amount of western U.S. forage, subsequently growing to account for 20% of total U.S. hay exports today.”
The report also notes in 2008, the United Arab Emirate banned production of hay, which means their forage needs have to be met by other sources, such as the U.S.
While prices typically drive planted acres, the severe and prolonged drought in the western U.S. is forcing many hay producers to fallow what was once high-production ground. Others are selling their limited water supplies to farmers who grow permanent, less drought-tolerant crops.
Rabobank reports an estimated 300,000 acres of hay ground—most of it in California—has been pulled from production.
“Hay producers are concerned about prices reflecting falling milk prices, but the continued drought might pull even more hay out of production,” Crowder said.
Rabobank expects demand for high quality western U.S. forage to remain strong, although the short-term challenges will add increased volatility and ultimately pressure prices upward.
“What that means for dairies is hay prices are not going back to the 10-year average of $100 per ton,” Crowder said.