‘Tis the season for outlooks and predictions!
Since the ranching business is effectively the grass business, and since western ranches never have enough grass, keeping track of the hay market is an unfortunate necessity. However, it’s not an easy market to anticipate.
“I have said this before and you probably don’t like to hear it, but to try and predict hay prices has become almost impossible with the many variables in the western hay industry,” said Seth Hoyt of the Hoyt Report, a hay marketing publication. Hoyt spoke at the 2017 Western Alfalfa and Range Symposium, held Nov. 28-30 in Reno, NV.
Some of these many variables include the key issues faced by the dairy industry, and growing export demand for high-quality hay.
“The volume of domestic use of western-produced alfalfa hay and other forage crops depends on the dynamics of the western dairy industry,” wrote Dr. William Matthews and Dr. Daniel Sumner, both of the University of California-Davis Agricultural Issues Center, in their symposium proceedings paper.
According to Matthews and Sumner, dairy demand for alfalfa hay has been rather volatile in recent years. Improved efficiency of genetics and feed management of dairy cows has led to declining demand. Milk prices also have been lower than the cost of production in many areas, encouraging dairy farmers to look for lower-cost feed alternatives such as corn silage.
“Examination of production trends for alfalfa and corn silage show that alfalfa production on western farms has steadily declined since 2002 while the production of corn silage has trended upward during the same time period,” Matthews and Sumner pointed out.
In 2002, western alfalfa producers harvested 22.4 million tons of hay, according to the pair. This declined to a low of 18.7 million tons in 2015, a 16 percent decline. Though much of this can be attributed to the drought in California, the decline began well before the drought.
This decline also coincided with an increase in the production of corn silage, Matthews and Sumner added.
The substitution of alfalfa for cheaper feeds in dairy rations could be offset by export demand, the pair said. Export demand for alfalfa hay has been increasing significantly in recent years. Exports this year are estimated at coming close to 5.2 million metric tons.
Increasing demands for dairy products in China—resulting in a rapidly-growing Chinese dairy industry—and restriction to water-use policies in Saudi Arabia will likely keep hay demand growing into the future.
Matthews and Sumner reported that Chinese demand for U.S. alfalfa hay jumped 265 percent between 2007 and 2016 with 1.4 million metric tons being sent in 2016. Export of alfalfa hay to Saudi Arabia in 2017 is estimated at over 400,000 metric tons compared to 100,000 metric tons in 2015.
Alfalfa hay trade with South Korea—third largest destination by volume after Japan and China—is also likely to increase, assuming the continued reduction of tariffs via the Korea Free Trade Agreement (KORUS) are not disrupted. KORUS was implemented in 2012, and tariffs are set to reach zero by 2022.
“With the elimination of trade duties, Korea could become an even bigger market for western U.S. hay markets,” commented Matthews and Sumner.
“We note, however, that any renegotiation of this trade agreement, given the current political environment, could threaten any potential gains.”
Estimates for 2017’s alfalfa hay export to South Korea stand at 1.1 million metric tons.
Returning to Hoyt and his predictions, he said price forecasts on hay are dependent on too many factors to foresee well.
“Unless the milk price outlook changes, I believe that exporters could have a big influence in the alfalfa hay market in the West again in 2018.” — WLJ
