Export competition adds to ‘scary’ hay market
By Steve Adler
One of several hay barns at the Border Valley Trading Co. processing facility in Turlock is packed with Central Valley alfalfa hay that will soon be compressed and placed into ocean containers for export.
This container of shrink-wrapped, compressed alfalfa bales has just been loaded at the Border Valley Trading Co. Turlock processing facility. The hay will be hauled to the Port of Oakland, where it will be placed on a container ship destined for Japan.
"Hay prices are the talk of the town."
That was the observation dairy farmer Steve Nash of Selma made, when asked about the availability of alfalfa for California dairies.
Nash said he hasn't seen the price for premium quality hay drop below $300 this year, which is about $80 a ton more than a year ago at this time.
"We are all very concerned. There are a large number of dairies that don't have a large inventory of hay and they have intentions of trying to buy month to month. And there just may not be the hay out there or we could be looking at $400 hay when we get into the winter months, and that is if it is even available at all," he said.
In order to keep dairy cows healthy and productive, dairy farmers feed them about five pounds of alfalfa a day in the feed ration, Nash said, adding that some people are trying to utilize more corn silage in the mix, but that's not a direct one-to-one replacement.
"I talked with my hay broker and he said he doesn't think there is going to be any hay available this winter. It is a scary thing," he said.
Adding to the problem is competition for the limited supply of hay from foreign buyers. A Bloomberg News story reported this month that it is now cheaper to ship hay from the Imperial Valley to China than it is to transport it to dairies in the San Joaquin Valley.
Hay market analyst Seth Hoyt, author of the weekly Hoyt Report, said he spoke with exporters who ship alfalfa hay to China from Long Beach at a cost that ranges from $16 to $25 per ton. The cost to ship alfalfa hay by truck from the Imperial Valley to Tulare ranges from $45 to $50 per ton.
The Bloomberg article mentioned that shipping lines hauling Asian goods to the U.S. are failing to fill containers on the return journey, driving down the costs of transporting hay in containers to Asia.
"It costs $45 a ton to get dairy hay up the state of California to Central California dairies," said Greg Braun, president of Border Valley Trading Co. of Brawley. "When I compare that to the trucking cost to get containerized hay from the Imperial Valley to Long Beach and then add the ocean cost on top of that, it is about the same or less than trucking hay to the San Joaquin Valley."
Border Valley Trading Co. is one of the largest exporters of compressed hay products in California, with processing facilities in Brawley and Turlock and a loading facility in Long Beach.
"We have buyers in Japan, Korea, China and the Mideast—we ship to about 18 different countries," Braun said. "Three years ago, we shipped to about six different countries, so that tells you how much growth there has been in the export industry on alfalfa. Not all the hay goes to dairy. We ship a lot of hay to camels, goats, sheep and horses."
Braun said that with alfalfa prices now running about 30 percent higher than at the same time last year, he is starting to see a slight decrease in overseas purchases.
"As far as the export industry is concerned, we are getting to price points now where we are starting to lose some demand. There are other sources for hay, including Canada and oat hay from Australia," he said.
To prepare hay for export, Border Valley compresses bales and loads them into standard 40-foot ocean containers. Each container can hold up to 24 metric tons of compressed alfalfa.
"A regular three-tie bale is 48 inches long, 15 inches high and 23 inches wide. We compress the 48-inch length down to about 20 or 21 inches, and then we reband it. The only thing that changes is the length. The other dimensions remain the same," he said.
Both Braun and Nash pointed out that the tight supply of alfalfa is due in part to farmers shifting production from alfalfa to other crops, including annual crops like corn and soybeans as well as permanent crops—particularly almonds and pistachios in the San Joaquin Valley.
"There have been a lot of alternative crops put in with high commodity prices that basically reduced alfalfa ground in the state of California. It is a simple case of supply and demand," Braun said.
According to the U.S. Department of Agriculture National Agricultural Statistics Service, alfalfa production in the 11 Western states is estimated to be 2 percent lower than last year. NASS estimated that alfalfa hay yield in California this year would be 6.9 tons per acre, up from 6.8 tons last year and the second lowest yield since 2006.
In addition to his 1,500-cow dairy, Nash farms 640 acres and is able to produce both alfalfa and corn silage.
"We are fortunate on our dairy because we grow about 60 percent of our hay and almost all of our corn silage. I think that is going to be the business model going forward. Dairy farmers need to grow their own feed. It may be the only way that they will be assured of having feed," he said.
Unfortunately, not all dairy farmers have sufficient cropland available, Nash said.
"With the high price of cropland, this isn't the time to be buying land. The other thing is that more and more of this land is being put into permanent nut crops, because they are making more money than what they were able to get growing alfalfa," he said.
Nash said the only thing that keeps dairy farmers solvent is the fact that milk prices have also increased. According to The Hoyt Report, the overbase milk price in California in June was $19.49 per hundredweight, compared to $13.47 for the same period in 2010.
"We have had strong milk production this year. If you look at current milk prices, they are good. They are paying the bills, but we are not paying off a lot of debt—and that is bad," Nash said. "When you are at one of the high points of traditional milk pricing and you aren't able to pay off debt, that is not normal. We should be paying off a lot of debt currently and we are not."
(Steve Adler is associate editor of Ag Alert. He may be contacted at email@example.com.)
Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.