After a mid-year slump, the volume of hay exports out of the Pacific Northwest appears to be picking up again, according to a recent Hay Market Snapshots report issued by Northwest Farm Credit Services.
Citing July 2011 figures from the U.S. Department of Commerce, the report notes that baled-hay exports were up nearly 13.6% over those of July 2010. Even so, the volume of Northwest hay exports dropped 27% in July of this year compared to June's exports.
The drop can be "largely explained" by weather delays and quality issues associated with the first cutting of alfalfa in Washington, Oregon and Idaho, according to the report. "The export market generally demands high-quality test hay, and buyers largely passed on first cutting," it reads. "However, as the season progressed and quality remained below historical levels, foreign buyers realized that if they didn't begin to buy hay, there wouldn't be any left to purchase."
The tight supply situation in the region, particularly for alfalfa hay, has also enabled hay-export firms to get some international customers to provide up-front commitments for hay orders. "Prepayments are not the norm for export buyers, but are more common to new customers in new markets. Where exporters are supported by letters of credit and cash in advance, they've been more willing to be aggressive in the marketplace as international customers are taking increased levels of price risk."
The outlook is not as rosy for dairy producers, the other major hay-buying group in the region, according to the report. "To this point, strong milk prices have allowed dairies to cash-flow higher hay prices, but with continued hand-to-mouth buying, many dairymen lack an adequate winter inventory."
What's more, the report adds, the financial position of most dairies is not likely to improve in the months ahead. "Although milk markets remain volatile, the trend appears to be toward lower prices, and increasing feed costs are the primary culprit in rising break-even levels. It's uncertain how some dairies will feed cows through the winter, but significant adjustments to feed rations are likely. (Hay) will be racheted back or eliminated entirely." Read the complete report.