The USDA projects an 8 percent increase in California hay acreage to be harvested this year. But market analysts say they’re not sure production will rise that much, due to a variety of factors.
With more hay planted and prospective U.S. corn acreage expected to be its highest in 75 years, market analysts agree that prices for forage and feed crops will likely weaken this year, but not nearly enough to provide significant relief for dairy farmers.
The latest report from the U.S. Department of Agriculture, released March 30, indicated U.S. farmers intend to plant 95.9 million acres of corn this year, up 4 percent from 2011 and the largest corn acreage since 1937. California corn acreage is expected to increase 2 percent from last year — to 640,000.
U.S. farmers are also expected to harvest more hay this year — some 57.3 million acres, a 3 percent increase from 2011, while California farmers say they intend to harvest 1.5 million acres of hay, up 8 percent from last year.
If these projections pan out and farmers have a good growing season, California dairy producers could enjoy lower prices for a variety of feedstuffs in the months to come — certainly for alfalfa hay and corn, the two main feed ingredients dairies use, said Joel Karlin, commodity manager and market analyst for Western Milling in Goshen, Calif.
After two years of adverse growing weather in the Midwest that hurt crop production, Karlin said the longer-term outlook for feed crops "looks fairly favorable." He noted that the Midwest has experienced record warm temperatures this year that have allowed farmers to start planting earlier, which could result in better yields and more acreage being planted.
But he warned that dairies will probably continue to pay very high protein meal prices because the USDA report also indicates a 1 percent drop in the intended plantings this year for soybeans, another major ingredient of a dairy ration.
"Because there's so much corn being planted, it's coming a little bit at the expense of soybeans," Karlin said.
Hay market analyst Seth Hoyt said while he thinks there will be some softening of alfalfa hay prices this year, "they're not going to drop significantly and be at a level like in 2009," when a financial meltdown in the dairy business crimped demand for hay and caused prices to plummet from their 2008 peaks.
After losing money in 2009, hay farmers looked to grow other crops, Hoyt said, noting that California alfalfa hay acreage last year reached its lowest level since 1942 — 880,000. Fewer acres and less carryover from the previous year resulted in tight supplies and record high hay prices — $237 a ton in 2011, compared to $133 a ton in 2010, according to USDA.
Conventional wisdom would say that such prices would lead hay farmers to plant much more alfalfa this year, but Hoyt said he is not convinced of the USDA forecast numbers. He noted that alfalfa acres in the Imperial Valley are down due to larger durum wheat plantings this year. Bermuda hay acreage also has dipped in that region. In addition, there are fewer dry land grain hay acres planted and fewer acres will be harvested in the state this year due to drought.
"(Hay farmers) just don't want to be in a position again to have all their production in hay if they can be diversified more, and that's what they did," Hoyt said.
Given the high cost of hay and current falling milk prices, Hoyt said he expects dairy farmers throughout the West will continue to use less alfalfa hay in their dairy rations. And that could have a dampening effect on the overall hay market.
John Rodrigues, a hay grower in Kings County, Calif., said there's no question that what happens in the dairy market affects the hay market, as growers look at those dynamics to make their planting decisions. But for him, the bigger determining factor is still water.
"We will increase or decrease (hay acreage) primarily based on available water, because hay is not at the top of our pecking order. Cotton and tomatoes are at the top of the list, and hay fits in with the other crops based on available water to fit our rotation," he said, noting that his hay acreage has remained the same as last year, even though this has been a tougher water year.
Matt Budine, CEO of Progressive Dairy Solutions, a dairy nutrition and management consulting firm in Oakdale, Calif., said because of the huge correlation between the price of alfalfa hay and dairy farmers' profitability, he has seen "a significant decline in alfalfa hay fed to dairy cows in the last two to four years."
"Alfalfa used to be the king of forages in the western part of the U.S., but at $300 a ton, it is no longer the No. 1 economical forage source; corn silage is more economical," he said.
Dairy farmers don't cut out alfalfa hay completely, he said, but "the more progressive dairy operations are feeding higher levels of corn silage and feeding less grain and less alfalfa hay, and that's how they're surviving."
Karlin added that other feed substitutes, such as almonds hulls, also can help extend limited hay supplies.
Karlin said he does not foresee the ailing dairy economy having the depressing effect on hay prices that it had in 2009. He pointed out that hay acres may be up this year, but they are not as high as they were in 2009, because so much land has been converted to competing crops.
There is also good foreign demand from countries throughout Asia and the Middle East that are "more than willing" to pay top dollar for California hay if domestic dairy producers cannot pay the going price, he added.
And with the lack of rain this season that is further hampering hay production, Karlin said feed crops "are going to remain at elevated levels, much higher than dairy producers would like."
Budine said dairies may see a 10 percent to 20 percent reduction in feed cost if farmers have a decent growing year, but "nobody is projecting a huge relief."
"The only way the hay price will really fall is if we see 200,000 cows go to beef because the dairymen are going out of business," he said.
(Permission for use granted by California Farm Bureau Federation. Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)
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