It gets tougher each year for western hay market analyst Seth Hoyt to predict alfalfa prices. The 2015 crop year may be his hardest ever to predict.
Hoyt is a California hay market veteran and author of the weekly hay market newsletter The Hoyt Report. His resume includes more than 25 years as a marketing specialist with the California Market News program and nine years with the California Agricultural Statistics Service in Sacramento.
Each December, Hoyt passes on the crystal ball approach to estimate alfalfa prices for the upcoming year. Instead, he interprets a boatload of data covering a wide range of issues to extrapolate his alfalfa price and production projections each new year.
Yet so many different factors today impact the current alfalfa industry. Notably, Hoyt’s keynote presentation at the California Alfalfa and Grains Symposium in December did not include a price range prediction for 2015.
He provided a broader forecast.
“Alfalfa growers will likely see softer prices than a year ago (2014). I think you should brace for this,” Hoyt told the packed crowd convened in Long Beach, Calif. at the Long Beach Convention Center.
“The jury is still out on how much lower.”
Why the softer price projection?
Hoyt says western carryover of hay inventories going into 2015 will be higher with some areas with more hay on hand than others. Most of the supply is fair-to-low quality alfalfa hay in growers’ hands, including rain-damaged hay.
Meanwhile, inventories of premium-supreme quality hay are not as plentiful.
Hoyt expects the impact of the uncertainty of irrigation water and competing crops will reduce California alfalfa acreage in 2015. He believes alfalfa hay acres in the state's Imperial Valley will be lower as growers switch some ground to durum wheat due to better pricing than alfalfa hay.
Meanwhile, Hoyt expects alfalfa acreage will likely increase in other western states, including Arizona.
Another reason for the downward alfalfa hay price prediction is the dairy industry, the major marketplace for the California alfalfa industry. About 70 percent of the state’s alfalfa hay production is fed to dairy cows. The remainder is exported oversees or fed to horses or beef cattle in California.
Milk prices have a major impact on the alfalfa industry. Three to four years ago, fluid milk prices fell like a rollercoaster at the Disney California Adventure Park to about $13 per hundredweight. In 2014, dairymen saw huge milk price increases averaging about $22 per hundredweight.
“Overall, 2014 was a great year for the dairy industry with record-high milk prices,” Hoyt said.
He followed that statement with a large asterisk as milk prices rapidly retreated in the fourth quarter of last year and early this year. Hoyt said one dairyman in central California said his breakeven cost was about $16 per hundredweight.
“The $5 per hundredweight price drop from September to December was ‘one heck of a drop.’”
There is concern where milk prices will head in the months ahead and how this would impact dairy decisions on alfalfa hay purchases.
“If prices for overbase milk in California drop to $14-$15 per hundredweight, this will reduce the price dairymen are willing to pay for alfalfa hay,” the market specialist said.
“If the California drought continues, dairymen may be forced to pay more than they would like for alfalfa hay but I believe the market will still be lower than 2014.
Less alfalfa in cow ration
Due to higher alfalfa hay prices last year, many dairies reduced the amount of alfalfa hay fed to dairy cows. The $100,000 question is whether dairymen will continue to reduce alfalfa hay in rations this year.
“The dairy industry will be the main driver of the alfalfa hay market,” Hoyt said.
Corn could take the place of some alfalfa in rations if the wide (price) spread continues between top quality alfalfa hay and rolled corn. In early December, Supreme alfalfa hay was delivered to Tulare dairies at a $140 per ton premium to rolled corn.
He added, “If wheat straw prices stay strong and dry cow alfalfa hay prices stay the same or decrease, some dairies may switch back to alfalfa hay for dry cows.”
The amount of alfalfa hay in milk cow rations has declined in recent years, down to about 7.5 pounds per cow.
Alfalfa hay exports
Mixed export demand from West Coast ports could also sour alfalfa hay prices. Making the situation worse is the current longshoreman’s strike which is reducing shipments to foreign buyers.
Alfalfa hay exports to the United Arab Emirates (UAE) were down about 50 percent last year, compared to the same period in 2013. Exporters have told Hoyt that the UAE overbought hay in 2013 so they have plenty of inventories. These exporters believe purchases will be higher in 2015, but not at 2013 levels.
According to figures from the U.S. Department of Commerce and exporters, alfalfa hay exports to China were strong in 2014 and should be higher in 2015.
Exporters suggest that China has the greatest potential for growth than other foreign markets. That said, China put the brakes on some West Coast hay purchases last summer when the Chinese government announced some West Coast-shipped hay included small amounts of GMO hay.
“This issue was a game changer,” Hoyt said. “This has reduced the amount of western alfalfa hay going to China.”
While China now has a no tolerance policy on GMO alfalfa hay, there is talk that China may accept GMO alfalfa hay in 2016.
Meanwhile, West Coast hay exports to Japan are running about 2 percent lower tied to the weak Japanese Yen and competition from Australian oaten hay.
Hoyt told the group that the largest drop last year in all types of hay shipped from the West Coast was timothy hay mainly from Pacific Northwest ports, due to the end of subsidies to farmers from the Japanese government for timothy hay purchases and competition for Australian oaten hay.
West Coast timothy hay exports to Japan dropped 23 percent last year, according to the Commerce Department.
Retail hay forecast
On retail alfalfa hay prices, Hoyt foresees lower prices as well. Retail alfalfa hay in the Imperial Valley is currently trading in the $240-$250 range after reaching a high last June of an average $273 per ton.
Overall, orchardgrass and timothy retail hay prices may decline slightly in 2015 but demand should remain strong for these grasses.
In a late-year development, sources suggest that were ample supplies of good to low premium retail timothy hay in the northern mountains of California that could add some downward pressure on that market.