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Outlook bullish for 2004 alfalfa hay prices

This represents a precipitous drop of almost 100,000 acres from a record high of 1,140,000 acres in 2002.

However, there are 300,000 more milk cows in California today than there were five years ago. That is one reason Seth Hoyt, senior agricultural economist with the California Agricultural Statistics Service is bullish on the 2004 alfalfa hay market.

Hoyt and Jim Tillison, executive vice president of the Alliance of Western Milk Producers, told the recent 33rd annual California Alfalfa and Forage Symposium in Monterey, Calif., that the 15-month slide in milk prices bottomed out last fall and a recovery, albeit a slow one, is at hand. That means hay prices should rebound in 2004. If they take another dip like they did last year, alfalfa fields would come out quicker than farmers could hook up disks.

Alfalfa producers statewide took serious economic hits on hay prices last year, especially in California’s Imperial Valley where the spread between 2002 and 2003 supreme quality hay prices was a gulf at $23 per ton. The price drops were less in the Tulare-Hanford-Visalia area ($20) and in the Tracy-Patterson-Stockton ($5).

Last season’s poor returns has growers looking to replace alfalfa with other crops this season.

According to Hoyt, there are some attractive alternatives, specifically cotton in the central San Joaquin Valley and processing tomatoes statewide.

Fourth more cotton

Cotton acreage could increase 20 to 30 percent in the San Joaquin Valley this season, said Hoyt, bolstered by strong prices fueled by rumored high import demands from China.

Cotton futures jumped 20 cents a pound on China buying a million bales of U.S. cotton a month or so ago, but plummeted when the U.S. challenged China’s exports into the U.S.

Hoyt said exporters are telling him the tariff dispute is a "temporary bump in the road" and "we are going to plant a lot more cotton in 2004" to meet demands of China and other importers.

California cotton is concentrated in six southern San Joaquin Valley counties and if acreage went up 25 percent, that could take 40,000 acres of alfalfa out of the market — "significant for one area of the state." The Southern San Joaquin Valley accounts for roughly half the state’s alfalfa acreage.

California cotton acreage totaled 700,000 acres last season, including 550,000 acres of Upland/Acala and 150,000 acres of Pima. Experts say Pima acreage will increase on the back of strong prices. There is little doubt it will reach 200,000 if spring planting weather is good. It could go higher.

However, it remains to be seen if the Acala/Upland acreage will increase. Some are predicting it would not, others are saying it could increase 10 to 20 percent.

Hoyt’s prediction of more processing tomato acreage is fueled by a California crop production decline of 16.4 percent last season compared to 2002. Reports are circulating that there is a world shortage of paste. Prices for paste in bins and drums jumped 10 percent in November.

To Sudangrass

Imperial Valley producers are expected to shift significant alfalfa acreage to Sudangrass for the export market.

The only caveat Hoyt attached to his bullish 2004 alfalfa hay market prediction is the uncertainty about how much milk cow hay dairies still have on hand. One of the sharpest declines in milk prices ever last year forced dairymen to cheapen their rations, lowering concentrate rations and stretching utilization of milk cow hay longer.

Typically, dairymen try to increase production to offset lower prices. "Dairymen were more concerned about survival than increasing production," Hoyt said.

A market turnaround in the dry cow hay market will depend on how quickly carryover supplies are reduced.

Dairymen may continue to cheapen up feed rations. Chicago Board of Trade futures prices are running $11.40 to $11.75. Those prices are a big improvement over rock-bottom prices of $9.50. However, Hoyt said it may take longer for the industry to "heal" at $11.50 prices.

"If milk cow hay at dairies is less that what we saw last year, I think it will tend to bring hay buyers into the market earlier in 2004," said Hoyt.

The other factor in the hay price equation is corn silage. When hay prices reached record levels in 2001, there was a 75,000-acre increase in corn silage acreage in the state. Something like that could happen again in 2004 if hay prices got too high.

Dairy outlook

The California dairy industry began extricating itself from a 15-month price malaise this fall thanks to a successful $54 million industry-funded program to reduce the number of herds in the nation; reduce milk production and promote exports.

The economic situation became so critical dairymen "actually quite buying cows," joked Tillison.

Dairymen accounting for 70 percent of the nation’s milk production kicked in a nickel per hundredweight of production to a fund for paying dairymen to reduce production.

The Cooperatives Working Together (CWT) program received 2,000 bids and accepted 376 to remove approximately 1.2 billion pounds of milk supplies from the domestic marketplace through 2004.

Almost 33,000 cows were slaughtered in the herd retirement program. Seventeen herds representing 10,000 cows were retired in California.

As a result of CWT, milk prices increased last fall. They have since fallen a bit, but should increase again when the CWT export assistance program kicks in.

California, the nation’s No. 1 milk producing state, was a strong participant in the herd retirement program. "When you retire a herd in California, it is a significant impact, much more so that in the Midwest where the impact of the herd retirement was not as significant," said Tillison.

More than 600 million pounds were taken out of the milk supply by herd retirement and another 88 million pounds were removed by dairymen agreeing to reduce production. Dairymen received about $4 per hundredweight for participating in both programs.

Tillison said the third phase of the CWT program will kick in shortly, a $20 million export assistant program to export about 30 million pounds of cheese during the next six months and about 10 million pounds of butter. These volumes represent about 500 million pounds of milk equivalent.

Will be compensated

CWT participant producers will be compensated for selling cheese and butter to exporters.

There are 1.7 million dairy cows in California and they are the driving economic force for the alfalfa hay market.

California became the No. 1 dairy state in the nation in 1993. It currently ranks No. 2 in cheese production, headed for No. 1 within three years, said Tillison. When that happens, Tillison expects Wisconsin to go "absolutely berserk."

That is the only No. 1 ranking left for California to capture. It already is No. 1 ice cream, butter and non-fat dry milk production.

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