High prices may hammer dairies if milk prices fall as far as expected

By TIM HEARDEN

Capital Press

YREKA, Calif. -- Hay prices should remain lower this year than at their peak in 2011, but they'll still be strong by historic standards, a market expert says.

First cuttings of supreme alfalfa are expected to sell for between $230 and $255 per ton, and as much as $270 a ton in Central California, said Seth Hoyt, author of the Hoyt Report.

"Historically, these are fantastic prices," Hoyt told about 50 growers during a University of California Cooperative Extension-sponsored workshop here Feb. 21.

"The bottom line is it's softer than last year," he said of the market. "Let's hope milk prices don't fall too far."

A lighter yield in some areas combined with an alfalfa shortage in the West last year to push hay prices higher. The cost of supreme alfalfa in California's Central Valley reached $290 a ton in late July as demand remained strong.

The price spikes caused growers to worry about the impact on dairy farmers and others who rely on the crop to feed their animals. Some growers recall losing as many as 40 percent of their buyers several years ago when hay prices were high and milk prices plummeted.

Many factors will drive the market this time, Hoyt said. One is exports, which are on the rise. Hay exports increased 16 percent from Washington and Oregon ports from 2010 to 2011, he said. One of the key destinations is China, which imported 180,000 tons of hay from Washington state in 2011.

"This is going to be a dynamic market to watch in the years ahead," Hoyt said, adding that China has not been able to grow quality hay and is looking to the West to meet the need.

Another factor that could hold prices up is drought in large swaths of the nation, he said.

"If the snow and rain don't come, we're going to see less alfalfa production in 2012 than in 2011," he said.

However, milk futures prices have dropped precipitously since early January, which could have implications for hay demand. Milk for March delivery is set at $14.14 per hundredweight, and growers need about $16 per hundredweight to break even, Hoyt said.

Hoyt blames overproduction of milk brought on by unseasonably warm weather for the sudden price drop. According to the latest USDA production report, not only was January's milk production up 3.7 percent from January 2011, but there were 93,000 more cows in the herd. Milk per cow also increased 46 pounds from January 2011.

Because dairy farms buy 75 percent of the alfalfa hay in California and 65 percent in the West, losses in the dairy sector could translate into reduced demand for hay. Higher hay prices last year caused dairy farmers to cut the amount of hay in the ration and substitute other feeds, Hoyt said.

Online

The Hoyt Report: www.thehoytreport.com