Now is the time to invest in a quality hay feeder, hay prices due to rise

In the Columbia Basin, harvest timelines are running between two and three weeks later than usual. First cutting of alfalfa in the Southern Basin began the last week in May and ended mid-June. Early first cutting was rained on heavily, and damaged hay was either sold directly to area dairies or green chopped.

It’s expected that all of the first cutting in the Southern Basin received at least some rain. Growers in the Northern Columbia Basin completed first cutting during the second to last week of June. It is estimated that between 75 and 80 percent of the alfalfa in the Northern Basin was rained on. Overall, yields were average to above average, but quality was off due to rain damage.

At the end of June, prices for new crop alfalfa in the Columbia Basin were running as high as $260 per ton at the stack for supreme quality. Prices for premium alfalfa were between $225 and $235, and between $215 and $225 per ton for good quality at the stack. In some cases, even fair-quality alfalfa traded above $200 per ton and lower-quality, rain-damaged hay sold for $150 per ton.

Second cutting in the Southern Basin began the last week in June and harvest will be in full swing by the first week of July. As the weather warms, there is some thought that the season will improve. Although growers north of I-90 advise they’ll be limited to three cuttings, hay producers in Othello and Mattawa have indicated the possibility of four.

The market for timothy hay was strong last year, and growers are expecting another year of profitable prices. Most growers in the Columbia Basin completed first cutting timothy during the last week of June, and Kittitas Valley producers should be mostly wrapped-up with first cutting the first week in July.

Interest in timothy is reportedly picking up, with prices mainly between $240 and $265 depending on quality. USDA Market News reported the sale of 600 tons of premium quality timothy at $280 per ton for export.

In Idaho, first cutting of alfalfa was delayed two to three weeks, and rain and cool weather continue to hamper the crop. Any hay cut prior to June 10 was rained on heavily. Second cutting will begin the last week in June. Due to the delay, predictions are that the area is likely to lose one cutting this year, and overall yield will be down 1.5 tons.

Alfalfa is in high demand from dairies, and at the end of June first-cutting supreme-quality alfalfa was selling between $220 and $240 per ton at the stack. Although prices for supreme-quality hay had reached upwards of $260 per ton for early first cutting, dairies are mainly resisting prices above $250 per ton despite limited supplies.

Premium hay had been selling between $225 and $235 per ton, and good hay for near $210 per ton. Low-quality rain-damaged hay sold for $145 per ton. For perspective, premium-quality hay sold for $150 per ton in December 2010.

Harvest timelines are running a week to two weeks behind in Oregon’s Klamath Basin. As of the last week in June, first cutting was between 75 and 85 percent complete. Yields were reported below average, and the area experienced some fairly significant rain on June 28.

A number of growers had not yet begun their first cutting, but planned to be in the field by July 1. (The cool weather allowed these growers to avoid the rain without the crop becoming over mature.) Prices in the region’s hay market were just being established, but USDA Market News confirmed the sale of 400 tons of supreme alfalfa for $250 per ton at the stack at the end of June.

Anecdotally, premium-quality hay had been priced in the $220 to $230 per ton range, and feeder hay between $190 and $200. The Klamath Basin is seeing strong demand from both in- and out-of-state buyers looking to secure inventories.

Primarily the market for first-cutting alfalfa is being driven by dairy demand. With hay acres down across the Northwest and expected lower yields on this year’s crop, dairymen don’t expect prices to soften much during the year. Because many dairies have been forced to buy hay hand-to-mouth, the supply gap between the end winter and first cutting 2011 meant that some dairies were almost out of hay.

At this point, higher milk prices are allowing dairies to cash-flow higher hay prices, and dairies that are desperate for hay are willing to buy at nearly any level of quality to lock up needed supplies.

Generally, exporters are taking a cautious approach to the market, not wanting a repeat of 2008 when prices got so high buyers backed-off. Many exporters were forced to write down high-priced hay inventories when the hay market crashed. Although exporters are anxious about procuring needed supplies, the price of first cutting is too costly given the low quality.

Instead exporters are focused on second cutting, which they hope will be of higher quality. A risk, though, is that if prices remain high and the Northwest is unable to produce a consistent supply of high-quality hay, export customers may turn to other markets for hay.

Good news for Northwest exporters is that the market is strong. According to the most recent data available from the U.S. Department of Commerce, Northwest hay exports rebounded strongly between December 2010 and March 2011.

Last summer began a trend where California hay exports exceeded those of the Northwest (for the first time ever). Referencing the graph below, hay exports from the Northwest in March were up 26 percent from February, and 35 percent year-over-year.

Exports to Japan from the Northwest were up 19 percent year-over-year in March and exports to other countries were up 58 percent. With respect to Japan, concerns over the impact of the tsunami on Northwest hay exports, so far, have proved unfounded.

Japan remains in the market for hay. Recognizing the tight supply situation this year, Japanese buyers have been fairly aggressive in negotiating for hay. Another positive factor is that China’s domestic supply of hay is down this year.

Overall, prices in Northwest alfalfa market are expected to maintain traction due to lower yields and fewer acres in production in 2011. Northwest dairies and exporters will compete heavily for second cutting, and California dairies and exporters are likely to enter the market searching for additional supplies of hay.

The significant hay shortage on the West Coast will likely find only limited relief as additionally new crop alfalfa becomes available. The reality is that supplies are tight, and weather for the remainder of the season will ultimately dictate how short the crop really is.  FG

—Source: Northwest Farm Credit Services newsletter, July 2011

Graphic courtesy of Northwest Farm Credit Service
Graphic sources: U.S. Department of Commerce, Hoyt Report, and USDA National Agricultural Statistics Service (Northwest average alfalfa price includes Idaho, Oregon and Washington)