Western alfalfa growers could face slightly lower alfalfa hay prices in 2009, if prices for corn and other commodities remain lower and cause dairymen to reformulate dairy rations with less alfalfa hay.
“I think we'll see some weakening in alfalfa hay prices in 2009,” said Wayne Gordon, hay broker and owner of Chino Hay Market in Parker, Ariz. (La Paz County).
“Perhaps (alfalfa hay) prices will remain steady for the first six to eight weeks of the new crop, but after that everyone will figure out how much hay is out there,” Gordon said. “The market will adjust to that, plus to the cost of different grains. If grain prices continue to drop, hay prices will follow. They work hand- in-hand.”
No one knows for sure how the alfalfa hay market will play out, he emphasized.
While corn prices burst through the $7 per bushel bubble earlier this year, December 2008 future prices in mid-August ranged from $5.60 to $5.70. Corn is an ingredient in dairy rations and dairymen will likely determine how to best blend commodities based on costs and nutritional value.
When prices for corn and other commodities were higher, alfalfa was considered an extremely good value. “Dairymen put more demand on feeding hay because nutritionists said dollar for dollar hay is as good or a better buy than other commodities,” Gordon said.
“When other commodities start dropping, dairymen change the mix rations. Some of that depends on how much hay is planted and what happens with the weather. Mother Nature dictates what happens in the future hay market,” Gordon noted.
Gordon, who has 25 years experience in alfalfa hay marketing, is surprised by recent record alfalfa hay prices. He said dry cow hay (in August) was selling for about $180 per ton, better quality horse hay from $190 to $195 per ton, and grassy hay was $165 to $175 per ton.
“I had no idea we'd ever have these prices,” Gordon said. “If someone had told me how high hay prices would be now I would have said they are crazy.”
Meanwhile, alfalfa is selling very well. “We are eating up our inventories and eating them up strong. Whether that's panic buying I don't know.”
Gordon markets 65,000 to 70,000 tons of hay annually. A local mill uses much of the summer hay to produce hay pellets bound for Southern California. Most of the rest is sent to Central and Southern California.
While alfalfa hay prices could soften, the Western alfalfa industry is still booming.
“It's a supply and demand issue; the demand outweighs the supply in the Western U.S.,” said alfalfa grower Lee Banning, Phoenix, Ariz. “That's due to the growth in the dairy industry and uncertainties over Western water supplies.” Banning owns Banning Farms and is the managing partner of Santa Maria Farms, both in Phoenix.
The market and price for alfalfa hay will continue to be strong and the supply will be short,” Banning predicts. “The alfalfa hay supply is shorter right now than anyone wants to believe. I don't think anyone has a true count on inventories.”
While some Arizona dairies purchase California-grown hay, Banning said increasing water restrictions in California could cause Arizona dairies to switch to Arizona-grown hay. Banning called the overall relationship between alfalfa growers and dairymen very cordial. “They both understand they need each other.”
It's ironic that for years alfalfa was a rotation crop for cotton. Now with soft cotton prices and high alfalfa hay prices cotton's role has shifted to a rotation crop with alfalfa, Banning said.
Arizona alfalfa growers harvested about 2 million tons of dry hay alfalfa on 250,000 acres in 2007, with an 8.3 ton per acre average yield. Maricopa County (greater Phoenix area) ranked first in the state with 69,000 acres, according to the National Agricultural Statistics Service.
Spiraling input costs for fertilizer, fuel, equipment, and bailing twine continue to take large bites from alfalfa growers' bottom lines. Prices for bailing twine made from oil have increased 80 percent since last December, Banning said. Fertilizer costs have risen to over $1,000 per ton.
Banning is making less money now than five years ago when input costs and hay prices were much lower.
“When I was selling hay at the farm at $98 or delivering hay between $75 to $95 at the farm we were making money,” said Banning, who is president of the Arizona Alfalfa & Forage Growers Association. “Today we're in the $175 to $200 range FOB the farm and I'm not sure if we're making money.”
Banning said some alfalfa growers are having a tough time finding new harvesting equipment to purchase. One farm equipment dealer said higher prices for steel, tires, and other components are causing manufacturers and dealers overall to reduce inventories.
“Alfalfa growers should order equipment six months before it's actually needed. If you want delivery next March or April, you should order by September or October,” said Santiago Aguirre, sales consultant, Booth Machinery, Yuma, Ariz. The company sells swathers, balers, and rakes.
“If you don't, the odds of getting the equipment are slim. Manufacturers are providing on-time delivery so they are managing their costs by primarily making what's on order,” Aguirre said.
Acreage for dry alfalfa hay in Maricopa County fell 14 percent from 80,000 acres in 2003 to 69,000 acres in 2007. Some of the loss is attributed to the Phoenix-area housing boom over the last decade which has now slowed due to the depressed U.S. economy.
Banning knows firsthand about the impact of urban encroachment which has transformed alfalfa fields into sprouted subdivisions filled with gigantic tile-roof houses.
“I grew 7,000 acres of alfalfa in 2004 and today I have 4,600 acres,” Banning said. “I was one of the harder hit farmers by new houses.” Yet Banning said alfalfa is still a good crop to grow in urban areas. “Alfalfa requires less machinery movement and fewer pesticides. It's more compatible with urbanization.”
NASS reports 2007 dry hay alfalfa acreage in La Paz County at 60,000 acres which yielded 8.57 tons per acre; Pinal County with 55,000 acres (8.18 tons per acre); Cochise County with 25,000 acres (7.2 tons per acre); Yuma County with 22,000 acres (9.09 tons per acre); and 12,000 acres in other combined counties (7.08 tons per acre).