(VIDEO: Seth Hoyt of the Hoyt Report discusses the hay market at the World Ag Expo)

Spring California supreme alfalfa hay prices should be $15-25/ton higher than prices of a year earlier, suggests hay market analyst Seth Hoyt, author of the online newsletter, The Hoyt Report.

“I predict supreme alfalfa hay prices this spring in California’s Central Valley could bring $155-165 FOB,” Hoyt told growers during a seminar sponsored by Hay & Forage Grower and Mycogen at World Ag Expo in Tulare, CA, in February. “Hay delivered to Tulare could bring $175-190.”

Hoyt’s crystal ball puts first-cutting supreme alfalfa hay prices (all FOB) in the Imperial Valley at $135-145/ton; in Arizona, $125-130; Idaho, $130-135; Utah, $130-140; and Washington, $145-155/ton.

The impact of possible El Niño rains during first-cutting alfalfa as well as fluctuating milk prices may temper those predictions, however.

Hoyt estimates, for Central Valley delivered prices on premium alfalfa hay, about $10/ton less than his $185-200 forecast made last December during the Western Alfalfa and Forage Conference in Reno, NV. His latest numbers weigh a recent decline in Class III fluid milk prices from the $15/cwt range to about $13/cwt.

Dairies buy nearly 75% of California’s and 65% of other Western states’ alfalfa hay production. “Let’s face it, the dairy industry needs hay growers just like hay growers need the dairymen,” Hoyt said.

The Western alfalfa industry is struggling to regain its economic footing. The worldwide recession substantially reduced U.S. dairy exports, resulting in a large milk surplus. Several herd reduction programs culled about 275,000 dairy cows to reduce milk output.

“It appears 275,000 cows were not enough; maybe 400,000 cows should have been removed from the market,” Hoyt said.

Dairymen faced an economic meltdown when milk prices fell from the $18/cwt range to about $9.75 and increased the amount of lower-priced alfalfa hay in their cow rations. Alfalfa hay prices sank like the Titanic, falling about $100-120/ton from pre-recession record prices.

Milk prices began a slow uptick last fall to the $14.50 range, providing a small profit for some dairymen, but prices have recently edged downward. Alfalfa prices have held, but there was a weaker undertone on lower-quality hay in mid-February.

“In 2009, dairymen lost a tremendous amount of money and bought alfalfa hay hand to mouth,” Hoyt said. “I think we’ll have a shorter supply of alfalfa hay this spring. Dairymen will pay more money for hay but not as much as if milk prices had moved to the $15-17/cwt range.”

Some experts predict milk prices will remain soft in the first half of 2010 and edge higher in the second half.

“When the money doesn’t flow like in 2009, there is no incentive for hay growers to grow more hay,” Hoyt said. “For some it’s a money-loser.”

In that regard, Hoyt predicts Western alfalfa acreage will decline in 2010. He believes California acreage will fall 10-15%, the steepest decline among Western states. California’s alfalfa acreage could drop to 850,000 acres, the lowest level in 60 years. Prior to the recession, California’s burgeoning alfalfa industry flirted in the one-million-acre range.

The Imperial Valley is the one place in the state where alfalfa hay acreage should increase – by about 2,500 acres, Hoyt said. That’s because there’s a lack of other crop options in the area.

Hoyt also predicts a 10% reduction in corn silage acreage in California in 2010. “We saw corn silage acres drop 22% in 2009 in California, mainly as a result of what happened in the second half of 2008 (falling prices) in the dairy industry. There were horror stories from growers who did not get paid for silage, so they cut their acreage.”

This means California’s corn silage acreage could fall about one-third over the two-year period, or about 150,000 acres.

“That is significant,” Hoyt noted.

Milk prices and water availability, he added, are the leading factors that impact the number of alfalfa hay acres in the Golden State.

On the export front, alfalfa hay exports from California ports in 2009 totaled about 1.252 million short tons. The West Coast’s largest foreign alfalfa hay importer in 2009 was the United Arab Emirates (UAE), the third-largest overseas buyer. Export numbers to the region spike up and down annually due to UAE distribution problems. Hoyt predicts the UAE will buy less hay in 2010.

Japan is growing more domestic hay and has increased shipments from Australia. West Coast sales to Japan have trended down over the last three years. Japan’s hay imports from all countries fell about 4% in 2009, Hoyt said.

West Coast hay exports to China will grow slowly. China wants supreme-quality alfalfa hay at fair-quality prices, he added.

Saudi Arabia will likely buy West Coast hay in 2011, Hoyt predicted. The country is taking a similar approach as the UAE and plans to utilize its limited water supply more for human consumption than for crop production.

“Saudi Arabia will become a player in the West Coast hay market. It has a large dairy industry, plus many goats and camels.” Hoyt believes the development of future U.S. alfalfa hay exports to other areas of the world will be slow.

Hoyt has 35 years of ag marketing experience, including 23 years with the market news branch of the California Department of Food and Agriculture. He served as senior ag economist with the National Agricultural Statistics Service in Sacramento, CA, until retiring two years ago.