The California alfalfa hay market will recover.
After all, there are still 1.7 million cows in California, points out Dos Palos, Calif., hay producer Daniel Burns of San Juan Ranches, and alfalfa is still the best source of protein for milk cows.
Unfortunately, the recovery will be much slower than the shocking collapse of the hay market, according to Western hay market analyst Seth Hoyt of Ione, Calif.
“To say the hay market faces challenges is a gross understatement,” Hoyt says.
The fluid milk price spiraled down from $20 per hundredweight last summer to less than half that in six months, sending shock waves through the dairy industry and alfalfa business like 220 volts of electricity.
Fluid milk prices are back up to about $11, but still well below the cost of producing the milk. Alfalfa growers are reeling in replanting plans; looking at reducing production by cutting off water to summer hay or letting fields go to seed in the summer.
Fortunately, farmers are switching to alternative crops. Dairymen do not have alternatives. Dairies continue to struggle to stay afloat; credit for them is drying up and they are buying just enough alfalfa and feed to provide daily rations for the cattle. Building feed inventory is economically impossible right now.
According to USDA, the U.S. dairy herd is forecast to contract to an average of 8.95 million cows in 2010 following a retrenchment to an average 9.18 million cows this year. This 2.5 percent contraction forecast for 2010 exceeds the 1.5 percent reduction in cows expected in 2009.
Cooperatives Working Together (CWT) announced recently that it has accepted applications from 388 farms to reduce dairy herds by 103,000 cows that produced 2 billion pounds of milk. Seventy-nine percent of the total cow reductions are coming from the Western and Southwest regions, representing 81 percent of the milk removed. This is the equivalent of reducing 200 million pounds of cheddar cheese production annually.
CWT is funded by dairy cooperatives and individual farmers who contribute 10 cents per hundredweight to a supply management program. This is the seventh herd retirement program offered by CWT because of low milk prices.
Hoyt told hay growers at a recent irrigation field day near Chowchilla, Calif., sponsored by Zimmatic, that demand for premium dairy hay is good, but prices are very low. That is about it for good news.
Some of the bad news:
• Going into the season this spring Hoyt says there were 470,000 tons of old crop hay unsold compared to 220,000 tons last year. This 2008 carryover into 2009 is equivalent to three weeks of supply based on a feeding rate of 1.1 pounds of alfalfa per cow per day.
• Many Imperial Valley and Southern California hay growers will let their hay go to seed after the first two cuttings and harvest the seed. Seed may not be worth much more than the hay, but it is easier to store than stacking unsold hay alongside fields, growers tell Hoyt.
• California alfalfa may be down this season more than the 30,000 acres USDA/NASS estimates. According to Hoyt, it may be 50,000 acres or more as growers disk out hay fields this spring after only a couple of cuttings rather than fall; reduce production by holding off an irrigation or two this summer; sell water earmarked for hay to other growers short on water in this drought or not harvesting alfalfa and let it go to seed.
Hoyt agrees with other analysts who say it will be 2010 before milk prices recover and dairymen and hay growers will have opportunities to be profitable again.
“If we have not seen the bottom of the milk prices, I believe we are very close to the bottom. The hay market wants to go up,” Hoyt says, predicting prices will be higher this fall with slight increases along the way. “Recovery will take some time.” There will be no quick turnaround, he adds.
For growers Burns; Don Cameron, general manager of Terranova Ranch at Helm, Calif., west of Fresno, Calif.; and Cannon Michael, operations manager of Bowles Farming near Los Banos, Calif., the drop in the hay market was not a big surprise. The quick plummet and depth of the financial abyss was.
“We stockpiled some hay last summer expecting a decent winter price,” says Cameron. “We sold it in February for $125 per ton and were glad to get it. I have been really surprised at how fast hay prices fell.”
Cameron says the problem is easy to define; too much milk and the high price of feed producers paid last year. Hoyt adds that is only part of the story. The other two elements in the collapse of milk prices were the world economic meltdown and a sharp decline in the export market for U.S. dairy products, neither of which dairymen were directly responsible for.
The money-losing scenario revived a term often used when there is a sharp drop in dairy product prices – equity burn rate.
“I have been told the equity burn rate is about $2 per cow per day. I have heard it as high as $4 per cow,” says Cameron.
The low hay prices put the brakes on alfalfa planting at Terranova. “We planted one field last fall that was a replacement for an old field we took out. We had planned on putting in more, but did not. We went with tomatoes, carrots, onions and garlic … trying to go with crops with more market stability,” he says. He also plans to take out alfalfa this spring that was scheduled to be taken out in the fall.
“We used to have 1,000 acres of hay. We are down to 500,” he adds. He may turn off the water on some fields for one cutting this summer. Summer dry cow hay prices are expected to be much worse compared to dairy quality hay.
“Fortunately, the neighbors we use for baling and roadsiding have adjusted their prices to reflect lower hay prices,” adds Cameron.
Bowles Farming had 600 acres of alfalfa penciled in for planting, but family member and farm manager Cannon Michael says “we are thinking of cutting back” due partly to the lower prices and the fact Roundup Ready alfalfa is still not available.
Bowles was one of the few farms that planted the glyphosate-resistant alfalfa before it was pulled off the market due to a lawsuit by radical environmentalists who wanted an environmental impact study done. The industry is still awaiting that report, which they hope will satisfy the judge so the product can return to the market.
“It is an amazing technology, and we cannot wait until it is back on the market. It really takes care of watergrass which extends the life of the stand,” says Michael.
So while Michael and other producers await the return of RR alfalfa, they watch the market.
Michael notes that last year was an “anomaly” with its high prices. While good for the bank account, Michael says it was not normal.
Michael says Bowles hopes to get $160 to $170 per ton for its premium dairy hay year-in-year-out. “I heard stories about $130 to $145 per ton FOB for premium hay at the beginning of the season,” Michael noted. Premium hay is selling in that range today in the Central Valley. “We obviously would like it higher – in at least the $150 or more range,” says Michael. “At least we are not looking at disasters like $50 per ton.”
Burns sold 4,000 tons of high test hay for $135 per ton before the season began. He was not thrilled with that, but “we had to move it” before he began harvesting the new crop.
San Juan produces hay from about 1,500 acres each year, rotating in about 300 to 400 new fields each year. He will take some fields out this spring rather than fall and plant summer crops like cantaloupes and pepper to replace the summer hay he would normally produce. “We grow high test hay. There will still be dairy cows around when this is all over … maybe not as many.”
The veteran Burns has been through more than a few hay market cycles. “It has got to turn around with the cow kill thing. I think we will see the market move up … maybe even in July and August. However, it will not move up like it did last year,” he said.
Seed producer Corky Hansen, managing partner of S&W Seeds in Firebaugh, shares Burns optimism that the market for hay and his planting seed will rebound.
“I think the water issue, especially on the West Side of the San Joaquin Valley where we have a fish drought, is of more concern to farmers right now,” said Hansen, who predicts 25 percent to 30 percent of alfalfa seed production on the West Side due to water shortages. Although hurting right now financially, Hansen says milk prices will rebound as well as alfalfa hay prices.