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California hay growers looking at back-to-back stellar years

Back-to-back Super Bowls are as rare as a used Yugo.

California alfalfa hay producers, however, are likely to feel they have caught two brass rings in just two turns of the merry-go-round when this year is over, according to alfalfa hay market analyst Seth Hoyt.

Normally, good years for a commodity are followed by more acres from growers trying to capture a profitable upside. However, there likely will be no more alfalfa acres this season, and most of the positive market factors of a high-yield, high-price 2007 are still in place.

Hoyt was senior agricultural economist, California Agricultural Statistics (CASS) when he told those at the recent 37th annual California Alfalfa and Forage Symposium that another stellar hay market year is in the cards this year.

Hoyt retired from CASS Jan. 1. However, he remains an alfalfa market analyst with his private hay market analysis business.

He is likely to be just as busy in retirement as he has been for the past two decades as one of the most authoritative experts in the business.

Last season was a flubber-like rebound of 2006. Hoyt called 2007 a “remarkable turnaround” from the year before. Hay prices tanked two years ago as California dairymen suffered through one of their most difficult years. Massive cow losses and reduced milk output due to oppressive heat and horrifically low milk prices ricocheted through the hay business, seriously wounding farmers who expected a good year. Dairymen balked at paying high prices for hay in 2006.

California hay prices were the highest in the nation as demand outpaced supplies. Higher exports bolstered by a weak U.S. dollar and increased hay feeding to beef cattle to mitigate a drought also contributed to record hay prices. The 2006 heat wave disrupted the breeding cycle, resulting in a large number of dry cows in California. This ran the dry cow hay prices to $64 per ton higher than the year before.

“Supplies of hay had become so depleted that even record high alfalfa yields in late spring and summer cuttings could not soften the markets,” Hoyt said.

The heat/dry cow and beef factors from 2007 may not be there heading into 2008, but most of the others that made last season such a gangbuster remain intertwined in this year's hay outlook provided by Hoyt in Monterey, Calif.

The normal pattern of increased acreage after a banner year is not likely to happen in California this season, according to Hoyt, who adds that although hay stocks at the close of 2007 were up, he does not believe they will be bearish on early season hay prices.

One reason hay acreage is not likely to change significantly from last season is that growers have more economically alternative crops available. It is the biggest selection in a decade, said Hoyt. One alternative, wheat, fits particularly well into the grower's plans to mitigate a likely water-short year.

Wheat prices started out strong on the eve of fall planting last year and have only gone up since. Hoyt said recent Central Valley hard red winter wheat contract prices were $235-$245 per ton, hard white wheat, $285-$315 per ton and desert durum a whopping $340 per ton. There were even reports of short supplies of white wheat seed.

For growers looking for ways to beat the bureaucratic drought and maybe a natural drought this season, these wheat prices are like finding a bird nest on the ground. A world shortage of wheat has sent U.S. wheat prices to their highest level in more than a decade.

Grain prices, coupled with fallout from low water supplies in the West, have cut California desert alfalfa acreage by 15,000 acres this season. Most of the Imperial and Palo Verde valleys reduced alfalfa acreage is in wheat.

“Desert durum acreage could double this year,” he said.

Sudan grass hay saw strong prices last season as well. However, Hoyt does not expect as much Sudan to be planted this season since Imperial Valley growers for the first time in history will farm under water allocations. Water will be saved for fall vegetables.

In the Palo Verde Valley, where farmers three years ago signed a water contract with the Metropolitan Water District of Southern California, Hoyt expects about 26,000 acres to be idled to fill MWD's maximum water order. About 4,000 of that will be fallowed or removed alfalfa.

The alfalfa picture is fuzzier in Central and Northern California where growers were told early to expect less water than last year. The State Department of Water Resources has already said it can only guarantee 25 percent of the normal quantity. The Bureau of Reclamation will make its first guarantee next month. However, growers are expecting to receive only 30 percent of allocation due to the recent ruling to control water flows through the Delta to protect the Delta smelt minnow. Last year the early season allocation was 60 percent and it remained at that for the season.

This could change with a wet winter. The water outlook began to look more promising as a series of three storms moved through the state shortly after Jan. 1, dumping heavy rain and snow in the valleys and mountains.

While encouraging, it likely will not be enough to increase alfalfa acres. It is not that alfalfa does not look profitable, but growers will use available surface water for permanent tree and vine crops or high value vegetable crops like processing tomatoes.

Some producers, Hoyt said, may still plant alfalfa this spring to take advantage of the 2008 market if water allocations go up sharply. However, planting seed may be short since supplies are tight now.

Part of this is due to the court mandate halting the planting of Roundup Ready alfalfa after last March 1. Many producers were planning to plant the herbicide-resistant forage last season and this season, and seed companies may be short of conventional varieties to replace those anticipated RR seed sales.

Growers planning on seeding RR alfalfa now must wait until the federal government writes an environmental impact statement that satisfies a liberal San Francisco judge and a radical environmental group, or until the judge's ruling is overturned. Either way, it will be at least another year before RR alfalfa seed will be available again.

“It would be wishful thinking to predict another 7.4 tons per acre average hay yield in 2008. An average yield could translate into unchanged to lower production in the state,” he added.

About 900,000 tons of hay was trucked into California for sale from nearby states like Nevada, Oregon and Washington, but also as far away as Colorado and Wyoming. That is not likely to change with no more acres going in California.

A weaker dollar made California hay attractive to Japanese dairymen in 2007 and the exchange rate has become even more favorable recently. This will make the export market strong once again in 2008.

The dairy industry controls the hay market. Corn and corn silage prices impact the dairymen's profitability. Last year record hay prices pushed silage and grain prices to high levels as well. Hoyt does not see that changing in 2008.

“Corn for silage acreage should be high again in 2008 as the outlook is for tight hay supplies and good hay export demand.”

“We could see another year where dairymen make offers that corn for grain growers find hard to refuse,” he said. Last year prices were as high as $35 per ton for standing corn. That is about $10 per ton more than dairymen had been paying.

There are at least 800,000 horses in California, said Hoyt, and prices for hay into that market remained strong last fall, reaching $220 per ton for orchard grass hay and $280 for Timothy hay.

However, hay prices correlate directly with dairy profitability and milk prices are high right now, $20 per hundredweight.

However, Hoyt and Mike Marsh, CEO, Western Dairymen, Modesto, Calif., told hay producers the milk cost of production is rising rapidly to meet those high milk prices because of the high feed costs. It's near $16 per hundredweight and climbing.

Last season dairymen used corn stalks, rice, bean and wheat straw, Bermudagrass hay, Sudan hay and straw and “some things I did not hear about” to beat the high cost of dry cow hay, said Hoyt.

Dairies paid $80 to $90 per ton for baled corn stalks, he added. “These high milk prices are on a collision course with higher costs of production and if and when milk prices fall, watch out,” Hoyt warned. If high alfalfa and corn prices again put the squeeze on dairymen, they would likely resort to the same non-traditional alternative feed sources as they did last season. If costs get too high, they could resist high hay prices. Alfalfa hay consumption is now 11 pounds per cow per day. Six years ago it was 15 pounds.

Nevertheless, Hoyt said milk prices are expected to continue strong for this first quarter.

Therefore, early season demand for hay should be strong, even though dairymen are holding high stocks industry-wide. Hoyt predicts third cutting 2008 desert hay should sell for $200 per ton. Central Valley hay should bring $210 to $220 per ton.

“My concern is what happens after that. If dairy profitability lags, that could become a bearish factor in the market. But I still think due to the current supply situation, prices will not fall out of bed if dairies start losing money. I would think dairy hay prices would remain in that $180 to $200 range with dry cow hay $20 to $30 behind,” he concluded.

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