Respected California market analyst Seth Hoyt predicts alfalfa hay prices will be higher in early 2011 compared to a year ago with new crop supreme hay fetching $200 to $220/ton range delivered to Tulare, California’s top dairy production area.
The prediction is slightly lower than December 2010 prices but higher than early 2010 new crop prices, noted Hoyt, the kickoff speaker at the California Alfalfa and Forage Symposium in Visalia, Calif. held in December.
Initial softer prices for new crop hay would be a belated Christmas gift for dairymen who face fluid milk prices at or below production costs.
Hoyt, author of the newsletter The Hoyt Report and a retired hay market statistician with the National Agricultural Statistics Service (NASS) in Sacramento, Calif., predicts Imperial Valley new crop supreme hay prices in the $160/ton to $170/ ton FOB range, with Central Valley supreme hay fetching $180/ton to $200 ton FOB.
Hoyt’s crystal ball predicts a 3 percent to 5 percent alfalfa acreage reduction in California this year, down to about 900,000 acres statewide. For the Western states overall, a 5 percent to 10 percent alfalfa acreage reduction is likely, Hoyt says.
The drop in California acreage in the Central and Northern valleys would be partially offset by unchanged alfalfa acreage in the Imperial Valley plus increased plantings in the Palo Verde Valley. Roundup Ready alfalfa, if available in the spring, could temper the acreage decline, depending on the yet-to-be finalized planting restrictions.
In 2009 and 2010, alfalfa hay production in Western states fell 3 percent, according to NASS data. The decrease included a 9 percent production drop in California. Arizona posted a 12 percent increase. Nationwide, alfalfa production increased less than 1 percent.
During the same time frame, U.S. alfalfa acreage fell 2 percent while Western states posted under a 1-percent reduction. California hay acreage fell 5 percent while Arizona acreage jumped 7 percent.
During the two-year span, yields fell 4 percent in California yet nudged 5 percent higher in Arizona.
Hoyt also expects fewer planted corn silage acres in California, but stronger silage prices this year. Corn silage, along with alfalfa hay, are key ingredients in quality dairy rations. Corn silage was planted on 500,000-plus acres in California in 2008. Hoyt predicts 2011 silage plantings in the 300,000 to 315,000 acre range.
Hoyt noted, “The bottom line is as long as the money situation at dairies is questionable then growers will be very gun-shy of growing corn silage and increasing alfalfa acres.”
Hoyt predicts softer milk prices in the first half of 2011 in the $13 to $14/hundredweight range. The cost of milk production in California in the third quarter of 2010 teetered at the upper $13 hundredweight level, according to data from the dairy marketing branch of the California Department of Food and Agriculture (CDFA).
“As a result we’re looking at continued tight money in the dairy industry,” Hoyt explained.
In the fourth quarter of 2008, California milk production costs averaged more than $17/hundredweight and have steadily declined since, CDFA reports.
California is the nation’s top dairy state with about 1.75 million cows as of last October, down 20,000 cows from a year earlier due in part to the global economic recession.
Seventy-five to 80 percent of California-grown alfalfa hay is fed to dairy cows; compared to about 65 percent for the entire West region. The bottom line is the dairy industry, in good and bad times, commands the steering wheel on the alfalfa bus.
An important California alfalfa hay milestone was achieved last year as California knocked off the Pacific Northwest region as the top West Coast baled hay exporter. Hay bales exported from California ports last fall totaled about 180,000 short tons, compared to about 140,000 short tons for Washington and Oregon.
“The main reason is ocean freight rates out of Long Beach and other California ports are more competitive than Washington and Oregon ports,” Hoyt explained.
This price scenario may continue in the long run. The Long Beach port is the top hay export location in California.
California hay export prices could edge slightly higher this year which could temper demand.
Japan, the largest importer of Western-grown alfalfa hay, should maintain its top buyer status this year. Japanese imports from the West Coast totaled about 30,000 metric tons last September, according to Japanese port data.
Australia, a competitor for U.S. baled hay exports, increased oaten hay exports to Japan about 5 percent last year. That could be lower this year due to increased rainfall in Australian and a strong Australian dollar.
“These factors will cause Australia to have a harder time competing with us,” Hoyt said. “I don’t see a big upsurge in Australian exports to Japan until perhaps later in 2011.”
Hoyt also predicts increased Western U.S. hay exports this year to the United Arab Emirates (UAE), the third largest U.S. export hay market. The UAE has a small dairy industry but has many goats and camels.
China should also remain a strong buyer of Western hay in 2011 due to its fast-growing dairy industry. The Chinese will press to pay less for U.S. hay, a futile effort since few good buying options exist worldwide.
“China needs Western hay,” Hoyt noted. “China will need to step up and pay more.”
U.S. Commerce Department data reveals West Coast alfalfa hay exports to China totaled more than 16,000 metric tons in September 2010, up significantly from about 2,000 metric tons in January 2009.
Another key market for Western hay is Saudi Arabia for the country’s large dairy industry. U.S. hay exports will likely increase over time since the Saudi government is poised to reduce water use for crop production.
“Saudi Arabia is a country which offers good potential for the U.S. in the future,” Hoyt said.
The hay market analyst predicts strong prices this winter for retail alfalfa hay, but prices may soften slightly when the new crop arrives.
Premium retail hay prices in the Imperial Valley escalated from $125/ton in July 2010 to $160 - $165/ton in December 2010. Prices in the Central and Northern valleys during the same time period swelled from $140/ton to $190/ton.
“Some people think the price could hit $200/ton,” Hoyt said. “There is less retail hay - alfalfa and other hay - in barns now compared to a year ago. There is more hay demand at feed stores.”
While the dairy industry remains in a tight fiscal grip, cash-strapped alfalfa growers will take advantage of short-term cropping options this year including cotton.
Cotton acreage bounced back last year to reclaim its King Cotton throne in the Golden State with 307,000 planted acres of Pima and Acala cotton. Hoyt says anxious growers ready to lock soaring cotton prices could increase acreage 10 percent to 15 percent in 2011 to the 400,000 to 450,000 total acre range, the level previously seen in 2007.