As Western dairies watch milk prices drop, growers should expect $10-20/ton less for first-cutting premium-supreme hay than was predicted two months earlier, said hay market analyst Seth Hoyt.

He revised downward his December hay-price forecasts while speaking at the Feb. 14 Forage Seminars at World Ag Expo, Tulare, CA. That puts Imperial Valley estimates at $250-255/ton; central California, $260-270; Idaho, $210-220; Utah and Nevada, $220-230; and Washington, $240-250, said Hoyt, author of The Hoyt Report newsletter.

“These are still fantastic prices,” he added. “But the dairy industry, which buys 75% of the alfalfa hay in California and 65% in the West, look where its milk price is.” Heavier milk production the past couple of months – up 3.4% in January across the U.S. and nearly double that in several Western states – has lowered prices.

California’s mid-February milk price was at $14.75/cwt compared to $16.75/cwt in February 2011 and $19.50 last summer. “If you look at March, the estimate is for $14.25; last year it was $17.35. It comes at a bad time, because cost of production at the dairies is also up.”

To produce milk today, he said, it costs about $16/cwt at a minimum. Dairies that don’t grow their own forage may have production costs of up to $17/cwt or higher to contend with.

“They’re going into a negative cash-flow situation. So I can’t see that the hay market is going to continue to be as strong when you have dairies … losing money.”

Dairies want to see hay prices at $290-300 delivered to Tulare, said Hoyt. Recent contracts are leaning that way. In western Nevada, 4,500 tons of 55-TDN or 175-RFV and higher hay sold with a delivered price of $295/ton to Tulare. Another contract, in east-central California, included 7,000 tons of first- and second-cutting dairy-quality hay at a delivered price of $297/ton to Tulare.

As he had done in December, Hoyt reminded growers that high hay prices forced dairy producers to cut some hay from rations and incorporate more corn silage and concentrates.

“We’ve seen a real drop in the amount of alfalfa hay being fed to dairy cows. In California, in the third quarter of 2011, dairymen were feeding an average to their milk cows of 8.6 lbs of alfalfa per day. In 2010, it was 11.15 lbs. And this is not just something that’s happening in California. This is happening throughout the West.”

Western alfalfa hay acres will again be displaced by corn, “but it does not appear that it will be to the extent we saw in 2011.” In California’s Imperial Valley, durum wheat acres will increase around 30% this year, also displacing alfalfa hay acres. Hoyt retained his earlier estimate that hay acres will increase by only 3-5% in California, Idaho, Nevada, Utah and Arizona this year, with Washington unchanged to 3% higher.

“Historically, if you had a market like we’ve had in 2011, you’d see a lot more than 3-5% more acres. You’d probably see a 15% or 20% increase.”

Hoyt has heard talk that corn prices could drop to $5/bu over the next three to five months. If that $5/bu prophecy comes true, rolled corn could go for $240/ton vs. the current $282/ton delivered-to-Tulare price and last year’s $330/ton peak price.

The retail alfalfa hay price in parts of California has reached $300/ton; in Arizona, from $300 to $315/ton. But there isn’t much available, he said.

“When you can put up big bales of alfalfa hay for the dairy industry and sell them for the prices we sold for in 2011, why would you want to put up a 100-lb bale?” Hoyt rhetorically asked his audience. The southwestern U.S. drought also spurred demand. “They needed horse hay, so they were very happy to buy retail hay, and not just alfalfa, but other types of retail hay, like bermuda.”