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International demand changing U.S. hay market for some

Progressive Forage Editor Dave Natzke Published on 09 August 2017

Dairy is the dog that wags the western U.S. hay market tail, but exports are starting to add more waggle.

A new report from Rabobank, “Foraging for Higher Prices,” looks at the hay market in seven Western states: Arizona, California, Idaho, Nevada, Oregon, Utah and Washington. Those states make up 18 percent of U.S. hay production and are the source for an estimated 90 percent of U.S. hay exports.

A look back: Weaker dairy prices impacted hay market

As U.S. milk production grew in response to record-high prices in 2014, dairy export markets began to soften in response to milk production increases globally. Those forces combined to weaken the dairy market, with the impact reaching back to hay markets, said Rabobank researcher and dairy analyst James Williamson, author of the report.

The average U.S. all-milk price fell from about $24.50 per hundredweight in September 2014 to $13.60 per hundredweight in May 2016, a decline of 45 percent.

Coupled with weather-related forage quality issues, U.S. hay stocks grew (Table 1).

Hay stocks on farms

And while hay stocks were building in 2015-2016, the percentage of high-quality stored hay fell in relationship to total stocks, adding to the downward pressure on hay prices. Between September 2014 and May 2016, average hay prices fell about 30 percent.

With lower hay prices, export markets soaked up some of the hay demand despite a strong U.S. dollar. Demand for forages escalated globally, according to Rabobank. Six countries – China, Japan, Saudi Arabia, the United Arab Emirates, South Korea and Taiwan – buy about 95 percent of U.S. hay exports.

Their demand, and a willingness to pay premiums for high-quality forage, underpinned improving hay prices, Williamson said.

In 2016, one of every six tons of hay production was exported. That’s expected to increase as U.S. hay acreage declines and hay demand grows.

Total export shipments during the first quarter of 2017 were up 18 percent compared to the same period a year earlier. Exports to China, South Korea and Saudi Arabia increased 47 percent, 18 percent and 62 percent, respectively. By mid-year, alfalfa hay exports were on pace for a record year (Table 2) while exports of other hay were also showing a slight improvement.

U.S. alfalfa and other hay exportsDemand from the six nations is expected to continue to increase during the next five years, especially to the Middle East, Williamson said. Saudi Arabia is working to phase out hay production by 2019 to preserve its depleted water supply.

Under the Saudi plan, dairy farms that export milk must stop producing hay by 2018; those that sell milk locally will be required to reduce hay production by 2019. If fully implemented, the USDA estimates Saudi Arabia will need about 1.3 million metric tons of high-quality hay annually.

As an incentive, Saudi Arabia is offering a $65 per ton subsidy to importers of alfalfa, roughly a 20 percent discount on the first-quarter FOB-destination shipping price. That allows Saudi buyers to outbid U.S. dairies for higher-quality Western hay.

In 2016, the U.S. supplied about 65 percent of Saudi hay imports. Saudi companies are buying land around the world in attempts to secure feed. Since 2014, Almarai has purchased more than 14,000 acres in Arizona and Southern California to grow alfalfa and export it to dairies.

Saudi companies may look for long-term growing contracts or joint-venture opportunities to secure adequate feed. They could also look to East Coast producers for lower-quality dehydrated forage to supplement non-milking cow rations.

Markets adjusting

So far in 2017, export markets are still adjusting to the new crop situation, Christy Mastin, international sales manager with Eckenberg Farms, Mattawa, Washington. Washington did have some rain damage during first-cutting alfalfa and timothy. This caused prices to rise above levels export customers were expecting, so many have waited to see the condition of Canada’s harvest, which has resulted in little no rain damage.

In addition to Saudi Arabia, China has been increasing purchases of alfalfa hay. However, the low milk price in China is limiting purchases of premium hay at premium prices. Instead, China is looking for large volumes of the best-quality hay it can get at lower prices.

“Currently, we don’t see new crop purchase prices being reflected in our new crop sales prices to these countries,” Mastin said.

South Korea suffered heavy rain damage on their domestic hay harvest last year. The next harvest is not expected to be until fall, so demand from South Korea could remain strong until their harvest and maybe into next year, especially if the harvest is challenged by weather again in 2017, Mastin said.

Turning the tide

Combined with growing exports, changing conditions at home helped halt the downward trend in prices in late 2016. A cold and long winter of 2016-2017 forced beef producers to increase supplemental feeding of hay, and some improvement in milk prices in the latter half of 2016 allowed dairy producers to buy more hay.

As a result, the May 1, 2017 hay stocks report revealed significantly lower hay inventory compared to 2016. Hay stocks in the seven Western states were cut by 30 percent. Hay prices have ratcheted up incrementally so far in 2017.

Improving market conditions have not yet translated into aggressive increases in hay acreage, with unprofitable years of 2015 and 2016 still fresh on producers’ minds. California hay acreage has declined even faster than the size of its dairy herd, while production in the other six Western states has remained relatively flat.

Earlier this spring, the USDA said U.S. hay producers intended to harvest 53.5 million acres of all hay in 2017, up less than 1 percent from 2016. Harvested area was lower in four of the seven Western states and unchanged in another.

The expected U.S. harvested area of alfalfa and alfalfa mixtures, at 17.1 million acres, is up 1 percent (226,000 acres) from 2016. All other types of hay harvested are expected to total 36.4 million acres, down less than 1 percent (169,000 acres) from 2016.

However, the estimates of planted and harvested acreages were based primarily on surveys conducted during the first two weeks of June. Since then, conditions have deteriorated in major hay-producing areas of North and South Dakota and eastern Montana.

Current price levels may not be enough to encourage increased hay acreage, Mastin said.

“I do think that timothy acreage will increase, as this was the second year of higher prices,” she said. “Alfalfa, I think needs another year for the price increase to be ‘real.’ If prices are lower or remain about the same next year, I’m not sure many will increase acreage. If prices increase for 2018, I think farmers will take a real look at increasing acreage in 2019.”  end mark

Dave Natzke
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