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Strong alfalfa prices to continue through early 2006

Improved alfalfa prices over the past two seasons coupled with a low carryover from 2005 will likely see continued strong alfalfa prices through the first half of 2006 and the first increase in California alfalfa acreage in five years, according to Leslie Butler, University of California, Davis economist.

However, Butler also told the 35th annual California Alfalfa and Forage Symposium in Visalia, Calif., recently that lower milk prices and tighter profit margins for milk may soften alfalfa demand in the later half of next season to levels “a little lower” than 2005.

December 2004 carry-over inventories were already at the lowest level since 1997 and that was exasperated in '05 when supplies were reduced with bad weather preventing fall planting for '05 harvest coupled with lower average yield caused by heat and armyworm infestations.

Another factor besides strong alfalfa prices driving forage acreage up is that alternative crops (corn, wheat, barley, sorghum, rice, tomatoes, sugar beets, dry beans and cotton) do not look financially better than alfalfa.

However, two factors are dampening the enthusiasm for alfalfa. One is the increasing cost of production, particularly fuel costs. Another is the availability of feed grain and concentrates, said Butler.

U.S. corn and soybean growers harvested their second largest corn and soybean crops creating large carryover stocks into 2006.

Severe damage to ports

Compounding the corn and soybean surpluses is the fallout from Hurricane Katrina, which severely damaged Gulf Coast ports, preventing normal corn and soybean exports from that region.

When the price of concentrates is low, dairymen substitute these higher energy feeds for alfalfa. This is critical to the alfalfa hay market since the dairy industry represents 70 percent of the alfalfa market in California with beef cattle accounting for 20 percent and horses 10 percent.

“Overall, feed grains and concentrates are expected to be in plentiful supply in 2006 and at prices similar to or lower than 2004 and 2005,” said Butler.

Milk prices are trending down after two years of upward movement; however, dairy cow numbers in California are still going up. They are expected to increase almost 3 percent to 1.8 million cows in 2006. Total milk production in the state is expected to set a record of 39.2 billion pounds this year and prices are projected to be lower in '06 versus last year and considerably lower than 2004 prices.

“Profit margins for dairymen are likely to be much tighter in 2006, around 40 percent lower than 2005 margins,” reported Butler.

Current strong hay prices in California continues to attract out-of-state hay producers who trucked into the state the highest tonnage of alfalfa last year since 1998. It is expected to go up next season and continue through the first half of the year.

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