Pent-up demand seen as driver for rebound in prices

By MATEUSZ PERKOWSKI

Capital Press

Hay prices have taken a strong hit in the past year, but some growers see signs of a rebound.

Burdened by low milk prices, dairy farmers have been buying hay on a "hand-to-mouth" basis without stockpiling much for the future, said John Flowerree, who grows hay in Christmas Valley, Ore.

"There's a huge pent-up demand that's going to occur come the winter months," he said.

Fluctuations in the value of U.S. currency have generally worked against hay prices during much of 2009, but that trend has begun to reverse, Flowerree said.

The dollar gained in strength following last year's financial crisis as investors rushed to U.S. currency as a safe haven, he said. That made U.S. hay seem more expensive in other countries.

"As a consequence, demand dried up," Flowerree said.

Now that the dollar has weakened once again, exports appear to be picking up, he said.

Though hay prices vary across the West, high-quality alfalfa is selling for roughly $120 to $150 per ton -- generally about $100 per ton less than during the autumn of 2008, based on reports from USDA's Agricultural Marketing Service.

The price has fallen enough that farmers are looking for other crop options, said Jack Getz, market reporter for the agency, based in Moses Lake, Wash.

"It's persuaded people to go to other crops," said Getz. "The hay price pretty much has bottomed out."

Though prices are still low, that doesn't mean the market is awash with hay, said Norman Beach, vice president of the San Joaquin Valley Hay Growers Association, a California marketing cooperative.

"Supply and demand were turned on their heads this year," said Beach.

Supplies are actually constrained at this point, but dairy farmers simply don't have the money to buy hay, depressing demand, he said.

That prompted some hay growers in the region to forego taking a final cutting, he said.

"A lot of people just gave up early," Beach said.

Low price isn't the only factor discouraging hay production, Beach said. The dire financial situation of many dairy farmers has created uncertainty about their ability to pay off debts.

"One of the big issues we're facing right now is collection," he said.

Hay growers are no longer willing to extend credit, which is particularly awkward with long-time customers.

"It makes for a bad business atmosphere," he said. "It strains the relationship."

Water shortages in California have further aggravated the situation, convincing many growers not to replant older fields, Beach said.

As a result of the dropping production, prices will probably firm up as the dairy market improves -- though prices are unlikely to return to last year's record highs, he said.

Hay prices generally seem to track corn and oil prices, and those have been tending to rise recently, said Shawn Clausen, farmer and former president of the Washington State Hay Growers Association.

Clausen said he's already seeing more hay from Washington heading to Japan, Korea, Taiwan and even the United Arab Emirates, where it's fed to camels, goats and horses.

"There's not much competition as far as (domestic) buying, so the exporters are driving the market," he said.

Staff writer Mateusz Perkowski is based in Salem, Ore. E-mail: mperkowski@capitalpress.com.

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