By just about every measure, the past three years have been heady times for the U.S. hay export business. But tight supplies have exporters wondering if the good times will last much longer.
U.S. hay exports to buyers in traditional markets like Japan, South Korea and Taiwan have remained strong. At the same time, new markets continue to emerge in the Far East – China and Vietnam – and in the Middle East – United Arab Emirates (U.A.E.), Saudi Arabia, Oman and elsewhere.
As of early 2011, industry sources were reporting that overall hay exports grew at a 4% clip annually between 2005 and 2010. In 2010, nearly three million tons of hay were exported.
Exports now account for nearly 4% of all U.S. alfalfa production, notes Dan Putnam, forage specialist with University of California Extension.
“Just five or six years ago, that was closer to 2%,” he says. “Any way you look at it, the growth has been striking.”
A surge in worldwide demand for dairy products has played a pivotal role in the global spike in demand for U.S. forages, says Putnam. In China, most of the country’s rapidly emerging dairy industry has taken root near the urban centers in its southeastern region. The country’s major hay-producing areas, though, are considerable distances to the north and west.
“A combination of weather challenges that makes it difficult to consistently produce high-quality dairy hay and the high costs of transporting that hay to the dairy regions has led (the Chinese) to look at importing more hay,” he explains.
A different dynamic is at work among Middle Eastern countries that have also launched major hay-importing efforts to supply emerging dairy industries. There, several governments have established policies to utilize scarce water resources to grow higher-value fruit and vegetable crops.
“They’ve decided it makes more sense to import the forages they need to sustain their livestock sector than to grow the forage themselves,” he says.
Whatever the underlying factors, the expansion in export sales has been good news for hay growers in the western U.S., particularly in California’s Imperial Valley, Washington’s Columbia River Basin and in Utah, Nevada and Arizona.
“It certainly creates opportunities for growers in areas where they have access to ports,” says Putnam. “And even if growers don’t export any of their own hay, it changes the net demand for hay products across the board.”
As positive as developments have been overall, officials at several leading West Coast exporting firms wonder if overseas hay sales can continue growing at such a rapid pace. In the short term, this year’s decline in U.S. alfalfa and other hay acreage is a major worry point. According to USDA’s National Agricultural Statistics Service, 2011 alfalfa plantings in 11 Western states were down 2%. Overall U.S. acreage has dropped 12% in the last six years, Putnam says.
“We have the customers, and the demand is definitely there,” says Rollie Bernth, president of Ward Rugh, Inc., Ellensburg, WA. “The big question now is whether we’re going to have enough of a hay supply to meet all of this demand.”
A U.S. supply shortfall stands to affect overseas hay sales in a variety of ways. Mark Anderson, CEO of Anderson Hay & Grain, Inc., also in Ellensburg, reports that many overseas buyers appear skeptical that U.S. hay supplies are as tight as have been reported.
“As they see it, we’ve been through these kinds of situations before, but we’ve never really run out of hay,” says Anderson. “What happens to our long-term relationship with customers if we get into next spring and there isn’t any hay to be had here? Things could get very interesting in a hurry.”
High domestic hay prices brought about in part by the acreage reduction is another concern for exporters.
“As hay values here climb higher, some of those governments and customers may decide to rethink their (hay importing) policies,” says Anderson. “They could either decide to start increasing their own production, or they could start looking to our competitors (Australia, Canada, Spain, Egypt and others) for a source of cheaper hay.”
Greg Braun, president of Border Valley Trading Co., Brawley, CA, is already seeing signs of a pullback.
“There is price elasticity with hay, even with alfalfa,” says Braun, noting that Border Valley Trading currently sells U.S. hay products in nearly 20 countries compared to just six countries in 2008. “And it’s starting to impact some demand in markets such as China. Other markets seem to be a little more insulated and are still buying at a pretty good pace.”
“All of the markets are different and have different price thresholds,” adds Greg DeWitt, with ACX Pacific Northwest, Bakersfield, CA. “Some are very price-sensitive and the high values we’re seeing now could cause a slowdown to some degree. But, in other markets, customers understand the value of high-quality hay and are willing to pay the price because they know that’s what makes milk.”
A variety of other factors could also come into play. Braun points out that competitive ocean-going freight rates, due largely to the U.S. trade imbalance with Asia, have played a critical part in the recent hay export boom. Currently, the freight cost of shipping hay from California’s Imperial Valley to China is close to that of shipping hay from the Imperial Valley to dairies in the state’s northern San Joaquin Valley.
“For a true comparison, you still must figure in other costs associated with exporting hay. But there is no question that favorable freight rates have been good for our business and allowing us to reach global markets.”
A concern for exporters, says Braun, is that a worldwide economic downturn could cause carriers to downsize fleets, leading to tighter capacity and higher rates. “There is definitely a risk that freight rates could go up,” he says. “Any rate increase added to higher hay prices would be detrimental to our business. We’ve seen this happen before.”
Others say U.S. monetary policy may be even more important in determining the future demand for U.S. hay products around the globe. A weak U.S. dollar has been a key factor in making U.S. hay products attractive to customers in other countries, says Bill Plourd, president of El Toro Export, Inc., in El Centro, CA.
“If fiscal policy in the U.S. keeps the dollar weak, that will be favorable for exports,” says Plourd. “On the other hand, if the dollar starts to strengthen, we’ll likely see market value for hay slip.”
Even with the concerns, Plourd, like most company officials contacted for this story, expresses confidence that the long-term outlook for U.S. hay export sales remains positive.
“Right now, we’re sitting in a value cycle that presents some major challenges,” he says. “But that will correct itself. We eventually will come off this cycle. We always do.”