Analyst Seth Hoyt says one question has been on the top of farmers’ minds lately: why are alfalfa hay prices falling in California when it is in the midst of its fourth consecutive year of drought.
Growers recall a severe drought in Texas about five years ago that pushed top quality hay prices up to US$350 per short ton and wonder why that isn’t happening in California.
Prices for top quality hay are down $45 per ton in the state this year, and feeder or dry cow hay prices have tumbled $75 per ton from a year ago.
The explanation is complicated, said the author of the Hoyt Report, a weekly analysis of the western U.S. hay market.
One of the biggest reasons is last year’s record high California milk prices, which at times exceeded $22 per hundredweight.
Dairies made big money and faced a huge tax bill. They were also worried about hay supplies.
“They purchased a tremendous amount of hay,” Hoyt told delegates attending the Canadian Forage and Grassland Association’s annual meeting.
Some of the alfalfa hay that the dairies bought last year was im-ported from Western Canada. Prices were attractive enough that they covered the high transportation costs.
As well, a work slowdown at ports in the western United States re-duced alfalfa hay exports and contributed to rising stock levels.
Hay stocks in California, which is home to 1.78 million dairy cows, were 129 percent higher May 1 than they were a year earlier.
It was much the same in Idaho, the second biggest dairy state with 586,000 cows. Hay stocks were up 181 percent in that state.
California growers reduced their acreage this year, but alfalfa hay production in the western U.S. actually increased by four percent because of strong yields, which added to the oversupply.
There is also bad news on the demand side. The average amount of alfalfa hay fed to milk cows in California has plummeted 37 percent to 3.6 kilograms per animal per day from 5.8 kg in 2003.
The decline started in 2011 when hay prices were high. Dairy farmers switched to alternative feed ingredients and have stuck with them.
Supreme alfalfa hay was selling at a $150 per ton premium to rolled corn in July 2014. The spread has narrowed to $85 per ton, but dairies are still staying away from hay because they need to keep a close eye on costs.
Dairy prices crashed late last year, plummeting to $14.50 per cwt., which is below the cost of production.
“Dairies are under water,” said Hoyt.
Producers began using wheat straw instead of lower end hay to feed their dry cows.
“It really dramatically decreased the amount of demand and usage of that lower end hay,” he said.
The spread between high quality and low quality hay has widened to $110 per ton, which is double what it was in June 2014.
Dairies are also using almond hulls and corn silage to feed to dry cows.
Doug Sawyer, director of the Canadian Cattlemen’s Association, said he learned a lot from Hoyt’s presentation.
“It’s interesting to see how many factors play into their hay market.”
Sawyer said Canada exports a lot of hay to the U.S., which is the top export market for that product at $66 million worth of sales last year.
“We have hay exporters here that are certainly looking to take advantage of the market in the U.S..”
Hoyt does not expect much of a change in the size of the dairy herds in California and Idaho despite the tough financial times.
The numbers have stayed re-markably constant over the past few years. There are a lot fewer dairies, but the ones that remain became bigger.
Hoyt said the hay price outlook for the western U.S. market is more confusing than when he started compiling the report 15 years ago because there are so many moving supply and demand variables.
His best guess is that the market for low-end hay will remain depressed unless El Nino delivers harsh winter conditions for the region.
He told his Canadian audience that they should watch the trend toward declining alfalfa hay acres in California. Plantings have fallen 25 percent since 2006 and there is no end in sight to that trend.
Farmers in California are instead shifting to planting almond and pistachio trees. Almond tree acres are up 40 percent since 2006.
That trend could force dairies to import more alfalfa hay from places like Western Canada.