Western dairies need to climb from hole before hay prices improve, expert says
Expect a 10% reduction in alfalfa acres in California and likely in Idaho — a direct result of the 2008-09 dairy disaster, said Seth Hoyt, former USDA market reporter and current author of The Hoyt Report, a hay and forage market analysis newsletter (thehoytreport.com).
“Until hay growers are convinced the dairies are really on a road to recovery and there is profitability again in the hay industry, they are not going to be inclined to put in more hay,” Hoyt predicted. He spoke at the California Alfalfa and Forage Association breakfast as part of the Western Alfalfa & Forage Conference in Reno, NV, last month.
Some of those acres are being contracted to grow corn for as much as $160-180/ton, wheat for up to $200/ton, and even cotton, he said.
A 10-15% drop in hay inventories will likely follow in California. “It's a problem trying to figure out how much hay there is when dairies are buying hand to mouth.” The hay isn't found at the dairies — it's stacked on the sides of growers' fields.
But milk prices are starting to move up, albeit slowly. “It looks like dairymen will start making a little money; they have a huge financial hole to climb out of. Their loss of equity in 2009 is unprecedented, so it will take them a long time.
“Milk prices will build back in 2010, but I don't believe to $19-20/cwt. It may get to $15-16 or maybe as high as $17; it's hard to predict.”
Dairy-product exports look promising now that the European Union cut its dairy export subsidies in half, there's a third-quarter 3-4% loss in milk production in Australia and New Zealand and the U.S. dollar is the weakest it's been in a long time, Hoyt said.
“The stars are starting to align as far as being able to export more dairy products.”
With smaller supplies, the demand for high-test alfalfa hay will be strong in the West, he added.
“In the Imperial Valley you're going to see $140-150 FOB on Supreme first-cutting alfalfa hay which is about $20/ton higher than first-cutting in 2009. Limiting factors on how strong the early alfalfa hay market will be in the Imperial Valley in 2010 will be the number of dairies still buying hand to mouth and the amount of money banks will give dairies for feed.”
He predicts that dry-cow alfalfa-hay supplies will tighten in central California, and that will pull in Nevada hay. This will raise FOB prices on dry-cow alfalfa hay in Nevada and push delivered prices higher in California. The spread between high- and low-end hay prices will be wide, but could narrow as dry-cow hay supplies dwindle before new crop next summer.
“I think the dairy market will pull the retail alfalfa hay horse market up,” he said. “We've seen tremendous demand for timothy hay for horses and I think that market is going to stay strong. Your orchardgrass-alfalfa market will get stronger as well.”