Dean Morrell of AGCO discusses the Hesston 1844 threestring baler during World Ag Expo in Tulare Calif in February This yearrsquos Expo included about 1500 exhibitors plus about 100000 visitors from 60 countries

Dean Morrell of AGCO discusses the Hesston 1844 three-string baler during World Ag Expo in Tulare, Calif., in February. This year’s Expo included about 1,500 exhibitors plus about 100,000 visitors from 60 countries.

Challenges reduce profitability for Western alfalfa

Western alfalfa prices will continue softer than a year ago due to tough financial times in the dairy industry and export buyers who want to pay less for hay than last year.

California market analyst Seth Hoyt predicts Western alfalfa prices will continue softer than a year ago due to tough financial times in the dairy industry and export buyers who want to pay less for hay than last year.

The combination of these factors spells reduced profitability for Western alfalfa growers.

Seth Hoyt, author of The Hoyt Report, a weekly online subscription-based hay market newsletter, shared his latest views on the Western alfalfa industry with a standing-room-only crowd during the 2013 World Ag Expo (WAE) in Tulare, Calif., in February.

The WAE seminar was sponsored by Mycogen Seeds and Western Farm Press’ sister publication Hay & Forage Grower magazine.

Hoyt predicted the first cutting of Supreme quality hay from California’s Imperial Valley would sell this spring in the $220-$230 per ton fob stack range. By mid-March, the price had dropped to $215-$220 per ton.

First cutting Supreme alfalfa hay from the Central Valley this spring should fetch from $240-$250 per ton fob stack, Hoyt said.

Both price levels are about $20-$25 per ton lower than this time last year.

“Lower alfalfa hay prices are due to the price of milk, not the supply of hay,” Hoyt told the crowd. “Most dairymen are not making money.”

Hoyt added, “All bets are off on Western alfalfa hay prices if California milk prices move upward to $19 per hundredweight or higher.”

At press time, the California overbase milk price was $16.30.

Alfalfa hay prices could strengthen if dairymen become financially sound, especially in the Central Valley which is home to around 1.2 million dairy cows.

Hoyt’s experience on alfalfa and forage hays includes 28 years with the Market News Branch at the California Department of Food and Agriculture. Hoyt served nine years as an agricultural economist with the National Agricultural Statistics Service; both positions in Sacramento.

He launched The Hoyt Report in March 2008.

Current low milk prices translate into unprofitability for dairymen which are taking a heavy financial toll on bottom lines.

In 2000, about 2,200 dairies were located in California, according to the California Department of Food and Agriculture. The number has decreased to about 1,600 dairies. This is a 27 percent reduction over the last dozen years, tied to lower milk prices and other factors.

“Due to the financial strain in the California dairy industry, I estimate California lost about 100 dairies last year,” Hoyt predicted.

California dairies are in a worse financial situation than any other dairy state in the nation, Hoyt says, due to higher production costs, plus lower milk prices tied to more milk used for processing (cheese and powdered milk) than fluid milk sold at retail stores.

While lower California milk prices are driving Western alfalfa prices lower, higher prices for rolled corn in the cow ration are a bright spot for alfalfa growers. Dairymen are reducing the amount of more expensive corn in the ration and feeding more lower-priced alfalfa hay.

Early last year, alfalfa hay fed to milk cows in California fell to 8.9 pounds, compared to 9.5 pounds in 2011. The rolled corn price spike caused dairymen to increase the hay in the ration to an average of 10 pounds per head per day in the fourth quarter of 2012.

“This is the reason why hay prices haven’t dropped more than they have,” Hoyt said.

Unprecedented price spread

Corn prices ran wild last summer, linked in part to the severe drought in the Midwest and elsewhere. Last September, rolled corn prices were $75 per ton higher than Supreme alfalfa hay, delivered to Tulare-Hanford dairies.

Hoyt said, “I have never seen this amount of price difference before. It is unprecedented to see this much of a price spread between rolled corn and supreme alfalfa hay.”

In recent months, corn prices have declined slightly. As of mid February, the price spread fell to about $30 per ton.

Hoyt said, “As long as rolled corn prices stay above the alfalfa hay price, this will tend to keep the alfalfa hay market from declining much.”

Another major reason why alfalfa hay prices have not fallen even further amid lower milk prices is spiraling exports of Western alfalfa hay from Western ports though at somewhat softer prices.

Baled alfalfa hay exports from California ports increased 25 percent last year due mostly to lower ocean freight rates out of Long Beach. Baled hay exports out of the Pacific Northwest ports of Seattle and Portland were unchanged last year, according to the U.S. Department of Commerce.  

The United Arab Emirates (UAE) and China are the largest importers of alfalfa hay from the Western U.S. Last year, UAE alfalfa hay imports from the Western U.S. increased to 590,000 metric tons.

Hoyt predicted, “The UAE is currently the biggest player for Western-grown hay…More alfalfa hay will be exported from California ports to China this year compared to 2012.”

Last year, exports of Western U.S. alfalfa hay to China doubled from the previous year – a 40,000 metric ton increase – the largest uptick in several years.

Hoyt was recently told that China has 15 million milk cows and wants to double milk production in the next five years. The U.S. has about 9.2 million dairy cows.

“The bottom line is China needs more hay,” Hoyt explained. “To achieve their goal, China must purchase quality hay.”

Much of the hay grown in China is not higher quality hay, Hoyt says, so the Chinese must import top quality hay from the U.S. and other countries.

Turning to Japan, Western U.S. hay exports to Japan fell 5 percent last year, mostly due to price. However, Japan dramatically increased imports of U.S.-grown timothy hay by 42 percent.

Radiation issues tied to the earthquake and tsunami in Japan two years ago reduced timothy grass production. As a result, the Japanese government is subsidizing timothy hay imports.

Sudan hay exports from the Western U.S. to Japan climbed 8 percent, mostly due to reduced supplies of oaten hay from Australia tied to excessive rains.

For the retail hay market in the West, Hoyt says expect strong demand this year for grass hay for horses, including orchardgrass and timothy grass.

Turning to California alfalfa acreage, Hoyt expects about half of all California alfalfa acres will be planted in Roundup Ready varieties this year.

“Those who grow Roundup Ready alfalfa understand why,” Hoyt said. “Even though the seed is expensive, the grower gets better quality hay without the expense of multiple herbicides.”

Hoyt predicts the higher hard red winter wheat prices last fall will displace alfalfa acreage in California’s central and northern valleys this year.

In the Imperial Valley, Durum wheat acres are down more than 50 percent, according to the Imperial Irrigation District.

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