For a second year in the row, export buyers could be in the driver’s seat of the 2018 western U.S. (western) alfalfa market more than dairy buyers as hay exports from the West continue to expand and dairymen continue to reduce hay in cow rations due to unprofitable milk prices.
This forecast from longtime western alfalfa market analyst Seth Hoyt includes this advice for hay growers who could sell hay for export – protect your hay investment after cutting.
“If you are a grower putting up alfalfa hay then cover it and take care of it. You don’t want to lose the export market option,” said Hoyt, former California Agricultural Statistics Service hay market analyst and today author of The Hoyt Report hay market newsletter – www.thehoytreport.com.
Hoyt discussed the latest developments in the western alfalfa market during a keynote presentation at the 2017 Western Alfalfa & Forage Symposium in late November at Reno, Nev.
Higher export demand
It’s no secret that the Saudi Arabian government plans to shut off water to grow crops, including alfalfa, and as a result import more hay. A large Saudi food company several years ago purchased western alfalfa farms at Blythe, Calif. and Vicksburg, Ariz. to grow hay to ship alfalfa back to the country to help offset hay needs for dairy. Yet this production will not be enough to meet the country’s alfalfa hay needs.
“As Saudi Arabia reduces water use, there will be more western hay going there,” Hoyt said. “Exporters I’ve talked with believe western alfalfa hay sales to Saudi Arabia will continue to grow.”
China is another growing market for western alfalfa hay. While western U.S. hay exports to China fell slightly last year, Hoyt says the huge Asian country has strong potential for additional western hay moving forward.
“We’ve seen exports of alfalfa hay to China increase over the last few months (Fall 2017) due to mainly Chinese buyers wanting hay delivered before the Chinese New Year in February,” Hoyt told the crowd of about 450.
He says Chinese buyers also wanted to keep the cost as low as possible which prompted more export movement at Long Beach, Calif. where ocean freights are more competitive than Seattle, Wash. Shipments from Long Beach to China totaled about 55,000 metric tons in September 2017, compared to less than 20,000 metric tons from the Tacoma (Seattle) shipping port in the Pacific Northwest.
“Cheaper ocean freight rates out of Long Beach became a bigger factor in the market over the last few months.”
Overall, western hay export sales to China jumped 13 percent from January through September 2017 compared to the previous year.
Other western alfalfa hay export markets are “mature markets.” Hoyt said his export contacts don’t expect much increase in alfalfa exports to Japan, Korea, and the United Arab Emirates in 2018.
About 5-6 years ago, the UAE was a promising market with 550,000 to 650,000 metric tons of alfalfa hay imported from the West Coast for the year, says Hoyt. The market dropped to 14,000 metric tons in October 2017.
The reason, “Western hay volume purchased 5-6 years ago was more than they needed. Additionally, they are purchasing hay from other areas of the world.”
Topsy turvy dairy
Domestically, dairy cow rations have been by far the No. 1 market for alfalfa hay for years. While alfalfa hay has many nutritional benefits for livestock, California milk prices have teeter tottered above and below the cost of production due to worldwide oversupply so dairymen continue to seek cheaper feed cost options.
Hoyt says this scenario has greatly reduced the amount of alfalfa hay fed to California dairy cows – from about 13 pounds per cow per day in California in 2002 to 7.3 pounds per cow per day in the second quarter of 2017 – a 45 percent decline in alfalfa fed to milk cows since 2002.”
Dairy price outlook
How dismal are milk prices in California? One figure Hoyt shared was the California statewide overbase milk price in Spring 2017 was about $14 per hundredweight (Cwt.) while the “barebones” production cost was about $15 Cwt.
Prices improved in August 2017 to about $16-plus cwt. but the increase was short lived as the price fell to about $15.25 Cwt. One projection for November through December 2017 suggests milk prices could again fall to $14 Cwt. or lower.
“The milk price is not helping the demand for alfalfa hay from the dairy industry,” Hoyt noted.
Among the cheaper cost feed inputs dairymen are using include almond hulls at about $85 per ton delivered to Central California dairies, plus rolled corn delivered to the same dairies for about $175 per ton.
Hoyt believes the price squeeze on milk prices will continue in 2018 which could continue to temper hay purchases by dairymen.
“Dairies will be forced to do all they can to keep feed costs down.”
Hoyt says the Class III milk futures market suggests higher prices in the $15.60 Cwt. to $15.70 Cwt. range in late 2018 but this may only translate to a high $14 Cwt. to $15 Cwt. price for California overbase milk.
Strong retail market
Hoyt says the retail hay market in the West continues to be strong. Imperial Valley low desert retail hay was selling in the $200-$210 per ton range. In the Northern California Intermountain region, orchardgrass for horses in late 2017 sold for about $250-$290 per ton for 95-100 pound bales. He expects the retail market for premium alfalfa hay to remain strong over the winter months.
Hoyt’s conversations with seed representatives suggest western alfalfa hay acres could be unchanged to slightly lower in 2018. In California, continued plants of almonds and pistachios in Central California and a drop in alfalfa acres in the Southern California desert could reduce alfalfa hay acres in California but probably not much.
While alfalfa hay plantings were up in the Northern San Joaquin and Sacramento valleys, those are not as large alfalfa hay production areas as Central California and the Southern California desert.
Hoyt says the reason for the increase in alfalfa hay acres from the Tracy area (San Joaquin County) and north were due to heavy rains last winter which damaged alfalfa fields. He says acreage has fallen about 7 percent in the Palo Verde Valley near Blythe (eastern Riverside County) with about a 4 percent reduction in the Imperial Valley (Imperial County).
Looking at the bigger picture, California alfalfa ground in the Central Valley and north could continue to be good ground for additional tree nut plantings, due to relatively good prices for almonds and pistachios plus more restrictive California groundwater regulations.
“I believe more alfalfa acreage in Kings, Kern, Tulare, and Fresno counties could be planted in tree nuts,” Hoyt said. “If this occurs, Central California dairies will have to rely more on alfalfa hay coming from out of state.”
Ayman Mostafa, area agent with the University of Arizona Cooperative Extension, estimated Arizona alfalfa acreage in 2016 at about 280,000 acres. In 2017, cotton gained acreage and early reports suggested fewer small grain plantings in the state. Meanwhile, he believes alfalfa acreage stayed about the same in 2017.
No. 1 question - alfalfa prices
Hoyt waited until the end of his presentation to discuss where western alfalfa prices could head in 2018 – likely the No. 1 grower question in the new year. For several years, Hoyt has passed on making a price prediction for the new year, citing numerous market issues which make predicting an approximate price nearly impossible.
He joked, “If I tried to predict the price they’d put me in a padded cell because there is no way you can do that currently.”
Let’s hope the padded cell comes with ample supplies of milk and ice cream.