Signs point to continued drop in hay prices

Apr 24, 2009
Signs point to continued drop in hay prices

After seeing prices rise to all-time highs during 2008, then drop at an unprecedented rate, California hay growers say they’re preparing for a tough year in 2009. Hay prices hit record highs last summer before dropping by as much as half for some grades of hay by the end of the year, the steepest singleseason decline on record.

Analysts attribute the price slide to factors including the nation’s financial crisis and a startling drop in milk prices. Sizing up the 2009 market for alfalfa hay, San Joaquin County hay farmer Mike Robinson said given current “horrendously” low milk prices and the potential for restricted water deliveries in the southern San Joaquin Valley, signs point to a continued downturn.

“With low milk prices, the dairies don’t want to pay a lot for hay,” he said. “Then there’s the potential for hay production to be cut back because there’s not enough water. I can’t say about the future, but I am predicting prices for first-cutting hay won’t be anywhere close to prices in 2008.” Imperial Valley growers already have their first cutting on the market—desert growing conditions allow them to get first cuttings to buyers before other growing regions—but prices, which act as a benchmark for the rest of the state, are disappointing to hay growers.

Early March prices for Imperial Valley alfalfa hay reportedly dropped as low as $110 a ton, down from $225 a ton for supreme quality during the same period in 2008.

California alfalfa growers will continue to see lower hay prices and an abundance of fair-quality hay this spring, said Seth Hoyt, a long-time hay market analyst. Higher carryover supplies could add a further drag on prices.

Hoyt told hay growers at a conference in December that uncertainty about irrigation water reduced alfalfa plantings last year at a time when price signals should have prompted growth.

Alfalfa hay acres in 2008 were down 4 percent and production was off nearly 7 percent compared to 2007. The U.S.D.A. pegged 2008 alfalfa acres at about 950,000, down from about 990,000 acres in 2007. “This was a significant development because, historically, after a strong alfalfa hay market year—like in 2007—acres in California would be up at least 10 percent the following year,” Hoyt said. “Growers weren’t willing to take a risk with alfalfa hay given the outlook for dry conditions and the uncer tainties about irrigation water in 2008,” Hoyt said. “With fewer acres, reduced production, and record high grain prices the first half of the year, it appeared the alfalfa hay market would stay strong in California throughout the season.”

It didn’t turn out that way. “Hay prices in 2008 started out phenomenal,” said Robinson, who is chairman of the California Farm Bureau Federation (CFBF) Hay Advisory Committee.

“But we saw a complete purchasing halt by January of this year, mostly due to the financial crisis and the reluctance of banks to lend on inventory. Unfortunately, there’s considerable hay in the barn and there isn’t any movement.”

The unexpected decline in milk and grain prices, along with tremendous production of wheat straw, helped account for the record drop in alfalfa hay prices, Hoyt said, with the biggest drop occurring in the dry-cow alfalfa hay market.

In 2008, prices on supreme alfalfa in central California opened in the $230 to $240 per ton range and moved higher to reach $250 to $260, occasionally reaching $265 in the north central area by July. But milk prices have continued to drop, with Class 3 milk futures falling as much as 35 percent from their highs of last summer, Hoyt

said. He said the outlook for milk prices through the first half of 2009 may translate into the biggest financial hit to dairy producers since 2006, with the damage to hay growers not far behind. “I’m anticipating hay prices are going to be down substantially for 2009, and if the milk pricing situation doesn’t get resolved, dairymen won’t be putting in the same quantity of hay as in the past,” Robinson said. Imperial Valley hay grower Ronnie Leimgruber, who is vice chairman of the CFBF Hay Advisory Committee, said the outlook for the current hay crop is “going to be dismal, but it’s one of those corrections that takes place every few years.”

“The question we’re facing now is whether it’s a bad two years, four years, or longer,” Leimgruber said. “Global demand is off, mainly Japanese buyers shying away because of the strong dollar, as well as the downturn in the overall U.S. economy and the troubles in the state’s dairy sector.”

He said his exports to buyers throughout Asia are off across the board. As far as production goes, Leimgruber said acres planted to hay crops are up, in part because the Imperial Valley uses water from the Colorado River, not from the unreliable state and federal water projects.

“But the availability of Colorado River water could change any day,” he warned. In Shasta County, Ivar Amen said hay market conditions there also are sluggish, with retail prices sliding about $60 to $80 a ton in the past few months.

“A lot of people in the north, especially in the Sacramento Valley, fear they won’t have enough water to irrigate their hay,” Amen said. “With a 25 to 75 percent cut in our water supplies, we won’t have enough water to grow a crop. People aren’t planting new hay because they just don’t know if there’ll be enough water.”

USDA will estimate prospective hay plantings for 2009 at the end of March. Like other alfalfa hay growers, Amen said the market is confusing. It’s likely production will be down, he said, but low dairy prices mean fewer sales.

He said he hopes the markets will “steady out” by fall and farmers and ranchers will have some idea of where things are headed in the future.

Los Banos, CA, hay grower Phil Bowles said because alfalfa is a four- to five-year crop and farmers can’t jump in and out of it like an annual crop, options are somewhat limited.

“Alfalfa growers are in the crop for the long haul and they have to take the good years with the bad,” he said. “But planting intentions for new acreage undoubtedly have changed if farmers can find something else to grow.” “One of the beauties of alfalfa, however, is that it can be an important component of rotation, even in a water-short time,” said Bowles, who is president of the California Alfalfa and Forage Association. “You can stop irrigating alfalfa and it won’t die, but you won’t make a crop either. You also can harvest the seed. There’s some flexibility with alfalfa that can be very useful in uncertain times.” 

No matter the environmental benefits of the crop or the flexibility alfalfa offers in water-short years, Bowles said the bottom line is this: “If our customers don’t have any money to buy, we don’t have any money from sales.

Simple as that.” Mike Robinson has this piece of advice for growers: “Buckle up. It’s going to be a bumpy ride.” — California Farm Bureau Federation