2010 could bring higher prices for Western alfalfa hay — good news for cash-strapped growers.

“In the short term I think we should see a slow improvement in Western alfalfa hay prices in 2010,” said Dan Putnam, Extension forage specialist, UC Davis.

Putnam shared his 2010 outlook as the lead-off speaker at the Western Alfalfa and Forage Conference held in Reno, Nev., in December. His prediction offered much-needed hope to the 670 alfalfa and forage growers and industry representatives in attendance.

Prices for Western alfalfa hay hit record-setting levels in mid to late 2008, but fell rapidly thereafter. Prices have plummeted 40 percent to 55 percent from 2008 in most Western states, but have stabilized in recent months.

Prices have leveled off in California, Arizona and Washington. Alfalfa hay growers in New Mexico, Oregon, Idaho and Nevada are smiling amid recent modest price gains.

Putnam calls the major collapse in hay prices “a precipitous decline.” From July 2008 to October 2009, California alfalfa hay growers experienced the worst price drop overall among the Western states; an average 56 percent plunge.

Idaho and Nevada hay prices tumbled about 50 percent while Arizona prices sank about 45 percent. New Mexico, at about 28 percent, had the smallest price drop among the Western states, according to National Agricultural Statistics Service data.

The culprit for lower alfalfa hay prices was soured demand for U.S. dairy exports caused largely by the worldwide recession. Putnam says milk prices retreated from $18 to $20 per hundredweight (cwt) in 2007-2008 to $9 to $10 cwt beginning in late 2008. These prices were well below the cost of production.

The lower milk prices pushed dairymen to re-examine feed inputs and reduce herds to shave costs. A major casualty was reduced alfalfa hay in feed rations. Purchases came to a virtual standstill, Putnam says. About 75 percent to 85 percent of Western-grown alfalfa hay is sold to Western dairies, depending upon the region.

“This most recent pattern of high and low alfalfa hay pricing was more extreme in 2007 and 2008 than it was in previous peaks and valleys,” Putnam noted. Additionally, the value of quality (price paid for high-quality hay) nearly disappeared during the peak in 2008.

The weak U.S. dollar from 2002-2008 enabled U.S. dairy products to become more competitive in the international market. U.S. dairymen responded by expanding herds to increase milk production to meet export demand. U.S. dairy exports increased threefold during this period, but then suddenly exports crashed in late 2008 due to the global recession and changes in the value of the dollar.

Production costs for alfalfa and dairy producers increased in the same time period; mostly tied to dramatic increases in input costs. Putnam says the cost of a 16 percent protein ration increased from about $5 per cow/day in 2005 to more than $9 in early 2008.

“Overall dairy exports and very high milk prices sustained the extraordinary high hay prices well over $200/ton over the last several years,” Putnam said. “But then the rapid collapse in the dairy export market created an excess milk supply for domestic consumption and the loss of profitability in dairies and reduced hay purchases.”

This brought hay purchases to a virtual standstill. Hay growers have struggled while awaiting an uptick in the U.S. and world economies.

In the past Putnam says higher hay prices usually encouraged “everyone and their cousin” to plant alfalfa resulting in an oversupply. The exact opposite occurred this time around. Acreage in some areas decreased up to 10 percent.

“The acreage reduction in some areas of California was tied to water restrictions and lower allocations, plus competition from other crops,” Putnam said. “Wheat had very attractive prices and required less water, so more acreage was planted in 2007-2009. Over a longer period of time alfalfa is being replaced by higher-value orchard crops and vineyards.”

Many experts, including Putnam, predict slowly rising milk prices; more time for dairymen to recoup from heavy financial losses; continued dairy herd reductions; stronger hay exports including shipments to the United Arab Emirates, China, and Japan; reduced alfalfa acreage and replanting in many areas; and reduced hay inventories.

“Hay prices should move up slowly as hay inventories are depleted and dairy prices improve,” Putnam said. “Debt and cash flow in the dairy sector will take time to recover. The key is an emphasis on producing high-quality hay for cash-strapped dairies. Controlling hay production costs will be crucial.”

However, Putnam encouraged the audience to think of the long-term trends. For many years the Western alfalfa industry has existed in an “expanding universe” of dairy demand. While Western states produced about 17 percent of the U.S. milk supply in 1970, these states now produce 46 percent of the nation’s milk supply.

“This has been a phenomenal rate of growth,” said Putnam.

In 2008 five of the top 10 dairy states were Western (California, Idaho, Texas, New Mexico and Washington). California is the nation’s top milk-producing state, and produces 22 percent of the nation’s milk.

Western alfalfa growers have largely not matched this rapid dairy growth, Putnam said. While dairy production increased sevenfold in Arizona over the last 40 years, only a modest increase in alfalfa production has occurred.

California experienced a fourfold increase in dairy production with an almost leveling out in alfalfa production. Idaho had an eightfold increase in dairy with nearly identical alfalfa acreage. New Mexico, with a whopping 25 times more milk produced in the last 40 years, has virtually flat hay production.

The reduction of alfalfa hay in Western dairy rations is a growing trend, Putnam says.

“Western dairymen are feeding more corn silage and concentrates, but fewer legumes and grass forages,” Putnam said. “Corn and small grains silage have good sources of fiber and energy.”

Putnam calls this a wake-up call for the Western alfalfa industry. There is a need for improvements in alfalfa yield plus quality. Future gains in alfalfa lie in genetics and biotechnology, irrigation improvements, production methods, and pest management.

The crop’s contribution to environmental services including wildlife habitat and carbon sequestration issues will also be important, plus dealing with complex regulations.

“Biotechnology is one of the fundamental issues the alfalfa hay industry needs to deal with over the long run,” Putnam said. “We need to get the Roundup Ready alfalfa issue right; to be able to adapt such biotechnologies which are deemed safe, while protecting those farmers who for one reason or another don’t want genetically-engineered crops. Future genetic innovations may help resolve salt tolerance in water and pest resistance issues, plus increase yields.”

The future profitability in alfalfa may depend as much on the industry’s ability to wrestle with these issues as much as insect sprays and cutting schedules, he says.

While alfalfa is an efficient water use plant, Putnam says strategies are needed to further plan for even tighter water supplies in the West. He is concerned about future alfalfa research on water and other issues due to budget reductions by the U.S. Department of Agriculture and Western-based cooperative Extension programs. Putnam says the private sector should pick up some of the slack.

Despite industry concerns, Putnam remains bullish on the future of alfalfa.

“Alfalfa is becoming more of a world-wide crop now,” Putnam said.

“Alfalfa has key environmental benefits that will keep it as an important component of sustainable agricultural systems in the future.”

email: cblake@farmpress.com