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Rabobank: US will need to boost hay production to meet growing global demand

Todd Fitchette Alfalfa field
California and Arizona combined in 2016 to produce more than 9.5 million tons of hay from over 1.5 million acres of land in 2016. Nearly eight million tons of that was alfalfa.
As hay exports to Saudi Arabia and China grow, U.S. farmers can seize opportunities to produce more forage crops for domestic and international consumption

Projections that Saudi Arabia will boost imports of U.S. hay could bode well for domestic alfalfa growers while hurting American dairy farmers at the same time.

A report by Rabobank suggests Saudi Arabia will need 1.3 million tons of high-quality hay annually by 2019 as the kingdom faces water conservation measures that will force tighter restrictions on the production of domestic forages for animal consumption.

In 2016 the U.S. exported 288,000 tons of hay to the kingdom, or an estimated 65 percent of total Saudi hay imports.

The Rabobank report does not break down hay by variety. Even so, alfalfa remains the top hay type produced in California and Arizona. Of the 315,000 acres of hay produced in Arizona in 2016, 280,000 acres of that was alfalfa. California growers that year produced 720,000 acres of their total 1.2 million acres of hay.

For the U.S. to hold to this figure and the kingdom’s projected needs, American hay production will need to increase by 45 percent, year-over-year through 2019, according to James Williamson, dairy analyst with Rabobank in Fresno, Calif.

This need is contributing to Saudi Arabia’s penchant for real estate as the country seeks irrigated land elsewhere around the world to secure the forages it needs. Since 2014 one Saudi company has purchased more than 14,000 acres in Arizona and California to grow alfalfa and export it to its dairies in the Middle East.

Rabobank also projects that Saudi Arabia could bolster its forage supplies in general through long-term contracts or joint ventures in the West, and could help meet its demand for dry-cow hay by working with East Coast producers to grow lower-quality, dehydrated forages.

What may be good for U.S. hay growers could be bad for American dairy producers as California and Arizona dairymen may seek less expensive, alternative feedstuffs in order to maintain milk production unless hay production is increased or international markets slow their demand for high-quality hay.

The $65 per ton subsidy Saudi Arabia is offering alfalfa importers is a 20 percent discount on the FOB shipping price offered for first-quarter, 2017 alfalfa, a move that will effectively allow Saudi hay buyers to outbid U.S. dairies for higher-quality hay from western states, Williamson says.

Rabobank projects demand from the top-six international importers – China/Hong Kong, Taiwan, South Korea, the United Arab Emirates, and Saudi Arabia – will continue to increase over the next five years. Saudi Arabia will likely lead the increased buying as water availability there forces continued water conservation efforts.

Under the tightening regulations, Saudi dairies that export milk will be forced to stop producing hay by 2018 and those that sell milk only for local markets will be required to reduce hay production by 2019, the Rabobank report states.

While Williamson focused on Saudi Arabia in his report, in a phone interview he mentioned China as another large buyer of American hay. In 2016 the U.S. shipped 1.275 million tons of hay to China and Hong Kong.

Like Saudi Arabia, California hay growers faced shorter water supplies in recent years due to drought conditions and regulatory constraints on surface water supplies. Since 2008 California hay production has slipped 32 percent, causing dairy producers in the state to look elsewhere for their hay, or seek other alternatives to the popular forage.

California hay production will likely be further impacted as provisions of the state’s groundwater management act (SGMA) are fully implemented and farmers of all commodities are limited on the amount of groundwater they can pump.

Hay production in the remaining western states of Arizona, Idaho, Nevada, Oregon, Utah and Washington has remained relatively flat during this same period, according to USDA figures cited in the Rabobank report. Even as California’s dairy herd has shrunk in recent years, those figures have not kept up with the decline in the state’s alfalfa production. In 2014, the most-recent year of statistics kept by the state, growers harvested from 875,000 harvested acres of alfalfa, producing 5.69 million tons.

Williamson cited a “perfect storm” of conditions to affect western hay supplies and prices in recent years.

After U.S. dairy producers enjoyed record-high prices for their milk in 2014, capping out above $24 per hundredweight on the federal orders, 2015 saw milk prices plummet. With it went hay prices.

By mid-2016 the national all-milk price was off 45 percent from its 2014 high as average hay prices were down 30 percent. The difference for hay farmers was the increased international demand for hay, which kept western hay prices from falling further.

Poor weather in 2015 and 2016 significantly reduced the stocks of high-quality U.S. hay, while subsequently increasing stocks of lower-quality hay. This led to a larger-than-normal price gap between high-quality hay and lower-quality bales – a conundrum for dairymen seeking high-quality hay, but a bit better for beef producers as they would need additional hay during the long, cold winter of 2016/17.

By May, 2017 hay stocks in the seven western states were estimated by the USDA at 1.99 million tons, down nearly 30 percent from a 2016 high of 2.99 million tons.

TAGS: USDA Water Crops
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