A conversation in mid-June with an Intermountain hay grower and CAFA member pretty well summed up the first half of the year for many alfalfa growers. The first cutting of alfalfa was about two weeks later than normal and hay wasn't quite up to the quality standards usually associated with the initial harvest. “That's what happens when you go from winter to summer,” he said.
We haven't talked to too many happy campers this year, except for an Imperial Valley grower who took advantage of a strong export market for sudan. The demand for sudan was reflected in a mid-July report that put Imperial Valley acreage at 61,269, an increase of 15,000 acres for the same period last year.
Meanwhile, the alfalfa export market has been a disappointment. In early July a Sacramento Valley alfalfa grower told us he was frustrated and puzzled by the lack of interest from export buyers.
The hay market through mid-July served as a reminder that the alfalfa market is driven by the health of California's dairy industry. Dairymen, of course, have experienced tough times and that was evidenced by the demand for high-test hay. Traditional supply-demand dynamics didn't come into play. Early season rains took a toll and despite a shortage of high-quality alfalfa, prices stayed at around the same levels as 2002.
Despite a rocky first half of the year, however, there are some reasons for optimism that a change may be in store due to developments in the alfalfa and dairy industries. Trends indicate that both industries are making adjustments that will bring a more normal supply-demand situation.
As pointed out in CAFA newsletters earlier in the year, sources were estimating that alfalfa acreage would decline by 5 percent to 8 percent from last year, a drop of about 55,000 to 90,000 acres. The lower estimate seems to have prevailed and California alfalfa acreage that will be harvested in 2003 is now estimated at about 50,000 acres below 2002. The Imperial Valley has seen the biggest reduction; down more than 28,000 acres. In addition, the Palo Verde and Coachella Water Districts reached an agreement to idle approximately 16,000 acres of farmland in the last half of 2003. An estimated 10,000 of those acres are alfalfa.
The trend of fewer alfalfa acres is also evident in other western states. In the seven western states, including California, alfalfa acreage is down 125,000 compared to last year. Alfalfa shipments into the state dropped by nearly 20 percent in the first quarter of the year. Hay other than alfalfa also tailed off in California with estimates of 470,000 acres vs. 500,000 in 2002.
Despite fewer hay acres and some speculation that more reductions lay ahead, the financial health of the dairy industry is still driving the market. There are signs that the dairy industry is beginning to see a much needed turnaround. The California Department of Agriculture's Dairy Marketing Branch reported a 23 cents per gallon increase in Class 1 fluid milk prices on July 10. It's the second highest month-to-month increase on record, but the $1.24 per gallon farm price is below the five-year average of $1.25 per gallon. Other positive signs include improvements in the cheese and butter markets.
Given the reduction in alfalfa acreage and signs that the dairy industry is beginning to rebound, there's reason for optimism in the months ahead.