Lack of profitability on dairies, the No. 1 consumer of alfalfa and other forages, has depressed demand for hay, dragging down prices that had reached record-high levels two years ago, when milk prices also peaked.
While demand for top-quality hay remains strong, fair- and low-quality hays are not selling as well, with inventories building around the state, said Dan Putnam, University of California alfalfa and forage extension specialist.
Because supplies for premium hay remain tight, there’s a “severe (pricing) penalty for low quality and a big reward for high quality,” he added.
“What we’ve observed over the years is that high-quality hays very rarely are in oversupply,” Putnam said. “Years like this when the supply of medium- and low- quality hays is greater and the ability of the dairies to pay for that hay is less, they will gravitate only towards those high-quality hays that produce more milk per unit.”
A weaker market for corn and other commodities have also brought down hay prices, he noted, as dairy farmers adjust their rations to use more grains, silage and other feeds to reduce their production costs.
“The dairyman has been figuring out how to use some of the other many commodities because they’re cheaper and working that into their program,” said Bob Ferguson, a San Joaquin County grower.
Rick Staas, president and CEO of San Joaquin Valley Hay Growers Association, said there has been an undersupply of both high- and low-quality hay all season, but particularly high-end hay because many alfalfa fields have had worm and aphid infestations, while yields may also be off this year, especially for premium hay.
Growers have the best chance of achieving high quality in the first two cuttings of the year, Putnam noted. But many of those early cuttings in the Central Valley got rained on, which downgrades the quality and the price by as much as $100 a ton, Putnam said.
Staas noted that part of the reason for the shorter supply of premium hay is in recent years, with robust demand from overseas markets and higher prices, farmers shifted to growing less-dormant varieties that produce more tonnage but don’t necessarily result in higher quality.
Growers get better quality if they harvest their crop at 25 rather than 35 days, Putnam said. The tradeoff is that the 25-day crop is about 20 percent lower in yield. When prices are high and there’s not a big spread between premium hay and lower-quality hay, growers are typically advised to aim for higher yields because the penalty for low quality is not as great. But in a low-price year, the reward is generally for quality.
Also, when there’s an oversupply of lower-quality hay, Putnam said growers run the risk of not being able to sell their hay if it is low quality.
“The worst thing that a grower can have is a product that just sits there because it’s essentially got zero value in that year,” he said. “You might have to wait another year until the price improves. But then you have the problem of that hay getting rained on or you have to put it in the barn.”
California growers are increasingly competing with hay from surrounding states, which can produce it cheaper, said Kings County grower Stan Azevedo, who also does custom hay work for other growers. He noted that even with added freight, out-of-state hay can still cost less, especially if that hay is coming in on back hauls.
He said part of the reason there’s more hay on the market this year is that exports have softened due to a higher-value dollar, which makes U.S. products more expensive.
But Putnam said the dollar has been strong in recent years relative to currencies of importing countries and yet hay exports from Western states continue to trend up, noting that hay exports actually increased 25 to 35 percent in the first two months of 2016 compared to the same period last year. He characterized this trend as the one “salvation” for California producers, particularly for those in the Imperial Valley that export a lot of hay, noting that 10 to 12 percent of hay produced in the West is now destined for foreign markets.
So late in the season and with the crop lacking in quality, growers agree that alfalfa hay prices are now at or below their cost of production and many of them are evaluating whether or not to do more cuttings.
Azevedo said he stopped irrigating his crop two cuttings ago because they’re older fields that weren’t producing the quality to justified the expense of the groundwater he was using.
Yolo County grower Jeff Merwin, who is wrapping up his fifth cutting, described his production and crop this year as average. He said growers in most years have trouble producing a good-quality crop by mid-summer due to the high heat, which forces the plant into survival mode and to grow very fast. By cuttings four and five, the quality is not very good “no matter what you do,” he said.
At current prices, Merwin said he’s concerned about the viability of growing feed crops such as alfalfa in the state, especially with rising labor costs. But he noted there are also very few options for growers.
“We’re really pinched,” he said. “The sad thing is, alfalfa is supposed to be one of those cash crops. It’s not like almonds, but for open-field ground, it’s one of those crops that a farmer can make money on.”
Staas said if alfalfa prices drop lower, he thinks there will be “a mass exodus” out of the business, with less acreage being grown in the state, and that will improve prices.
California growers are expected to harvest 870,000 acres of alfalfa hay this year, up from 790,000 acres in 2015 and 825,000 acres in 2014, according to the latest forecast from the U.S. Department of Agriculture.
As a grower, Azevedo said he looks to the dairy and beef markets for indications of what the forage market outlook may be and to determine how much alfalfa to grow. If milk prices improve and if there’s decent rainfall, he said he thinks some growers will be more optimistic and continue to grow alfalfa.
“Everybody is hoping for an increase in the price of milk, which will help the entire chain because these are interdependent industries—forage and dairy,” Putnam said.
Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com. Permission for use is granted by the California Farm Bureau Federation.