Recovery is coming soon, experts predict
A variety of factors combined to put a clamp on U.S. hay exports earlier this year. But some of the country's leading exporters say better times may be just around the corner for companies sending hay overseas.
The worldwide economic slump was a major factor contributing to the fall-off in hay exports to Pacific Rim countries like Japan and South Korea, traditionally the biggest buyers of hay moving out of California and the Pacific Northwest. In some countries, most notably South Korea, a decline in the value of the national currency led to a demand drop.
“When a currency weakens, buying power declines,” says Mark Anderson, president of Anderson Hay & Grain Co., Inc., a hay exporting firm in Ellensburg, WA. “Rather than bringing in hay from other places, they start pushing their domestic supply more and looking for alternatives to high-priced foreign hay.”
The global financial slowdown also played a role by curtailing imports coming into U.S. ports. That has created a shortfall of cargo containers available for shipping hay on ocean-going vessels. “It adds to the price of hay on the other end,” says Anderson.
Another factor, he says, is that the dairy business worldwide has experienced a major downturn.
“Slumping milk prices and high input costs aren't just a U.S. problem,” he says. “There's an imbalance worldwide. Until that works itself through, hay exports are going to lag.”
As much as anything, though, market psychology may be the biggest factor holding back movement of U.S. hay overseas at this point. Anderson says many buyers appear to have lost confidence in the U.S. pricing structure for hay. He notes that last year's climb in alfalfa prices was mostly a result of early season speculation that U.S. supplies would be tight due to a significant drop in acreage planted to hay.
“Everybody was looking for a big huge shortage of alfalfa,” he says. “But at the end of the day, the shortage was never recognized. When the prices started escalating, hay was coming out of every corner and demand started to fall.”
The net result is that many foreign buyers turned conservative about purchasing U.S. hay. “People got pushed over the edge with last year's pricing. A lot of money was lost in the hay business.”
Anderson says it may take several months for the market to find itself. One early positive sign: Domestic prices for this year's new crop have returned to more normal levels compared to where they were a year ago.
“There are a lot of things that have to be worked through to get hay moving overseas again,” he says. “But the drop in domestic prices is a starting point. Increased sales would be a good thing for everybody.”
Ron Leimgruber, who grows several types of hay on 2,500 acres near Holtville in California's Imperial Valley, sees signs that falling domestic hay prices have already led to improved sales in some foreign markets.
“We've been moving a lot of hay to Mexico over the last couple of months,” says Leimgruber, who also is vice chairman of California Farm Bureau's hay advisory committee. “It's mostly because our local hay prices have fallen off by $100/ton from last year's level. Buyers there can afford it now.”
Leimgruber, who notes that about one-third of his production is exported in a typical year, believes soft domestic hay prices will also encourage buyers in Pacific Rim countries to buy more U.S. hay in the near future. That could draw in new customers elsewhere, too.
“We've already made several sales to Saudi Arabia this year,” he says. “That's something we've never been able to do before.”
Several Persian Gulf countries have been buying from the U.S. and are poised to become major importers of hay, says Anthony Micci, export forage manager for Fornazor International, Inc. Fornazor is the export arm of Kansas Forage Products, a Stafford, KS, firm exporting double-compressed alfalfa bales and alfalfa pellets.
A rapidly growing dairy industry, coupled with growing competition for water resources, underpins the potential demand for hay products in that part of the world.
“Historically, people in this region have not been large consumers of dairy products,” says Micci. “But the taste for fresh milk, yogurt, cheese and butter continues to grow. In turn, that's created a huge increase in the number of dairy cows and need for high-quality forage.”
Paralleling the growth in the dairy industry, governments in most Middle Eastern countries have been rethinking the viability of using scarce water supplies to irrigate low-quality coastal grass hay.
“They'd rather see the water used for drinking water or higher-end crops like fruits and vegetables. As a result, they're turning to countries like the U.S., Canada, Egypt, Spain and others to supply their forage needs.”
Micci believes the Persian Gulf region will continue to import more forage going forward and hopes the U.S. will be able to compete in the market.
“It's way too early to tell exactly how much they'll be buying and what kind of prices they'll be paying,” says Micci, adding that Middle Eastern buyers are “very savvy” about the workings of U.S. markets. He also notes that domestic prices, fuel costs, rail costs and ocean-going freight rates will all play roles in determining how competitive the U.S. ultimately will be.
“But any way you look at, the prospect of selling more hay in that part of the world is very exciting,” he says.