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Two balers and two harrowbeds harvest top-quality, first-cutting Timothy hay for export in an Anderson Hay & Grain Co. operation south of Ephrata, Wash., last June. Economists say hay prices will remain high in the long run.

A short-term decrease in hay exports, lower milk prices and shipping delays at West Coast ports could soften western hay prices in the short term, but long-term global demand will keep quality hay trading on a new, higher price plain, according to industry analysts.

Growing global demand for U.S. hay, 95 percent supplied by western states, has largely contributed to western hay prices nearly doubling in the last 10 years, increasing to a new price plane, Rabobank economists Vernon Crowley and James Williamson said in the bank’s latest hay outlook.

Local demand for hay has also grown as western state dairies increased milk production 20 percent over the last 10 years and hay production declined 8 percent, the economists said.

Global demand for high-quality hay, especially from China and United Arab Emirates, and continued constraints on western U.S. production have squeezed an already tight market, driven hay prices to record levels and have raised the bar on minimum prices, they said.

“Ultimately, these factors have changed the industry … ,” they said.

Average prices have shifted to new levels. Along with increased prices, market constituents are facing a more volatile marketplace, they said.

Rapid development of large, corporate dairy farm projects in China and prolonged drought in UAE have been the primary drivers of the 30 percent increase in export demand for hay over the last five years, the economists said.

Prolonged drought in the West and increased competition for water for permanent crops has pulled about 300,000 acres out of hay production, and competition for land and water from high-value crops continues, the economists said.

“A short-term decrease in global demand, coupled with restraints at West Coast ports, will put downward pressure on (hay) prices. However, prices are expected to remain above history lows. Long-term prices and global demand are expected to increase, while competition from high valued crops continues,” the economists stated.

Water in the Middle East is an extremely scarce resource, leading governments to reduce the amount of water farmers are allowed to use. In 2008, the UAE government banned hay production altogether to protect limited water supplies. By 2013, UAE was responsible for 28 percent of total U.S. hay exports — more than 800,000 tons, Rabobank reported.

In 2014, that aggressive buying slowed with the realization of surplus supply, but UAE will likely resume buying 650,000 to 750,000 tons of U.S. hay annually to feed its dairies, the bank’s economists stated.

Saudi Arabia’s milk production is currently 10 times larger than that of the UAE. If the Saudi government bans the production of hay to save water — as UAE government did — the country will become larger drivers of the U.S. export market and push prices up further, Crowder and Williamson said.

China has also been a big player in U.S. exports following the melamine scandal in 2008. The scandal caused China’s government to implement new regulatory policies, and a restructuring of is dairy industry is taking place to meet demand from the country’s growing middle class for higher quality dairy products. Western U.S. hay helps China’s dairymen achieve better yields and follow regulatory guidelines, with its imports of U.S. hay growing to 20 percent of total U.S. hay exports, they said.

In mid-2014, however, the Chinese government began enforcing a GMO zero-tolerance policy on imported hay using a controversial detection device, severely affecting U.S. exports to the country. That, coupled with a slowing in the Chinese economy and non-competitive domestic milk production will temporarily decrease imports of U.S. hay, the economists said.

Expected resolution of the GMO testing, continued consumer demand and progress in the competitiveness of domestic milk production, however, will bring China back to substantial imports of U.S. hay, they said.

“Like every year, 2015 will have its own opportunities and challenges, but ultimately, hay — especially high-quality hay -- is a commodity needed globally to feed a growing demand for milk and protein,” the economists concluded.

U.S. average hay prices (by marketing year) received by farmers, dollars per ton

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