New crop Western-grown premium alfalfa hay this spring could fetch slightly lower income for growers if unprofitable milk prices continue to impede dairy profitability, says respected hay market analyst Seth Hoyt.

Hoyt, author of The Hoyt Report monthly newsletter, shared his 2013 price and demand outlook for alfalfa and grass hays during the California Alfalfa and Grains Symposium in Sacramento, Calif.

“If the milk price is not profitable when the first cutting of alfalfa hay comes off in the Imperial Valley this spring, hay prices could fall below the $240-$250 FOB price per ton received last year,” Hoyt told the crowd.

Hoyt’s prediction is not a crystal ball view of the future. His outlook is based on 23 years with the California Market News Branch at the California Department of Food and Agriculture. Hoyt worked nine years for the National Agricultural Statistics Service.

(See related: Market trends high priority at forage and grains symposium)

Hoyt says early supreme hay from the Southern California and Arizona deserts should find good demand, but price is another matter.

A similar scenario is likely for premium and supreme alfalfa hay this spring in California’s Central Valley.

“Prices for alfalfa hay going into Tulare for $290-$300 a ton last spring will not work if the dairies are in a negative cash flow situation,” Hoyt said.

Farm-gate milk prices have risen and fallen like a yo-yo over the last four years. Hoyt called 2009 prices received by dairymen a “train wreck.” Dairymen enjoyed profitability in 2011. Lower prices last year pulled many dairymen back into the negative cash flow column.

Low milk prices have placed many California dairies in a dire financial squeeze. About 100 California dairies exited the business last year, largely tied to milk prices below the cost of production.

As a result, the dairy industry will buy less hay this year.

Hoyt said, “One hay dealer in Hanford (Calif.) told me last winter he was selling hay to 11 dairies. This winter only two of the 11 dairies are left.”

In addition to milk prices, other issues which impact alfalfa hay prices include silage and grain corn prices, plus old-crop hay numbers. Hoyt says California currently has about 2 million tons of hay stocks on hand, up 20 percent from December 2011.

Wheat plantings will displace alfalfa hay in central and northern California this year due to a strong hard red winter wheat market, particularly last fall. However, Durum wheat acres in the Imperial Valley will be down from last year.

To partially offset the lost demand by California dairies, Hoyt says exports of Western alfalfa and grass hays are expected to increase this year.

Saudi Arabia is the country to watch

Hoyt expects China will continue as the top importer of Western-grown alfalfa due to its expanding dairy industry. While the growth of the China economy is slowing, the country’s dairy industry is rapidly expanding.

Last year, Western alfalfa hay exports to China were twice the amount exported in 2011. This year, Hoyt believes China could again double its Western alfalfa purchases.

“China will a big player in the Western alfalfa hay market in 2013,” Hoyt said.

China is now growing alfalfa hay in South Africa and South America. So far, production failed to meet China’s demand for alfalfa hay.

Another strong importer of U.S. alfalfa hay is the United Arab Emirates (UAE) which last year purchased about 525,000 tons of Western alfalfa hay.

Japan reduced its alfalfa hay purchases last year by about 5 percent. Not much growth is expected this year. Yet, Japan was strong in the market for grass hays last year. The country purchased 42 percent more western U.S.-grown Timothy hay and 9 percent more Sudan hay.

“Timothy hay is a hot item in Japan,” Hoyt said.

Why the interest in more grass hay? The tsunami which hit Japan in March 2011 caused radiation concerns in Japanese hay production. The government now subsidizes grass hay imports.

Hoyt says new overseas customers for Western alfalfa hay include Vietnam, India, and Saudi Arabia.

“Saudi Arabia is the country to watch,” Hoyt said. “They have large dairies and need a lot of alfalfa hay. Alamarai, the largest dairy company in Saudi Arabia, has purchased a 30,000-acre farm in Argentina which will reduce the amount of alfalfa hay they will need to import from the U.S.”

Last year, California ports surpassed those in the Pacific Northwest as the largest shipper of hay from Western ports. Freight rates out of Long Beach and Oakland were cheaper than those in the Pacific Northwest. Hoyt expects this will continue this year.

For retail market hay, Hoyt believes the demand and price for grass hays will remain strong this year.

Hoyt’s prediction for 2013 California alfalfa hay acreage is slightly lower acreage than the 950,000 acres last year. Acreage will increase about 12,000 acres in the Palo Verde Valley (Blythe area) due to reduced water needs for urban delivery contracts.

Acreage in the Imperial Valley desert should remain unchanged this year. Acreage could decrease about 5 percent in the San Joaquin and Sacramento valleys, and in the North Mountain region.

Alfalfa hay acres in Arizona will likely increase slightly this year due to growers converting cotton acres to alfalfa hay production. About 250,000 acres of Arizona farm ground were planted in alfalfa last year.

Hoyt concluded his presentation with his take on Roundup Ready alfalfa. He believes about 50 percent of California alfalfa acreage could be planted in Roundup Ready alfalfa this year, up from last year.

For the Western states, Hoyt believes Roundup Ready alfalfa could be in the ground on about 40 percent of the acreage this year.

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