12-month profitability outlook for hay suggests slightly profitable returns for alfalfa and breakeven returns for timothy

Drivers include June storms dampening first-cutting hay quality, lower hay prices and decreasing cost of production. Export quality hay faces headwinds from weak buyer demand and ongoing port challenges.

12-Month Profitability Outlook

Storms creating weather woes and lower test quality

Weather delays have created challenges for first hay cuttings across the Northwest. In Idaho, spring thunderstorms delayed the first cutting. Of the small amount of hay that was put up, most is rain damaged, and isolated pockets of Idaho hay were also damaged from hail and strong winds. Most of Idaho’s first cutting hay will likely be lower test quality with a majority being chopped. In Oregon, hay producers are delayed and have yet to start first cutting, but the delay might be beneficial as Oregon experienced several afternoon thunderstorms through Mid-June. Oregon producers are optimistic as hay conditions are good. Few producers were willing to start first cutting in early June due to the chance of rain. Washington’s Columbia Basin has seen less rain and test quality for first cutting is lower than producers hoped.

In Montana, rainfall has been the driving factor for hay quality as most of the state doesn’t start cutting until late June. In eastern Montana, widespread moisture ranged from 3 to 4 inches throughout the spring. Parts of eastern Montana that received closer to 7 to 8 inches of rain are in for a favorable crop. Isolated areas suffered from hail damage, with more damage possible as storms continue throughout June. Western Montana grass and hay benefitted from timely storms followed by sunshine and producers expect a good first cutting. Along the Montana Hi-Line optimism was tempered by drought concerns. Several Hi-Line counties are in moderate drought and the current snow water equivalent is 0% of normal. While irrigation is keeping the hay crop in good condition, irrigation availability could quickly change after the first cutting. This area isn’t alone; dry pockets (due to fluctuations in rainfall) will create opportunities for trade across the Northwest. Producers that grow their own hay for feed should closely monitor the weather and in areas of drought, budget for potential hay purchases. While not ideal, they will pay lower prices than the previous year.

A long winter depleted hay stocks

With more snowpack than normal, cow-calf producers had to push back the timing for turning their cattle onto pasture. As a result, cow-calf producers fed more hay than normal, depleting their reserves. This is reflected in the May 1 Hay Stocks report which indicates Northwest hay stocks are 16.9% below the 5-year average. Idaho had a 13.2% decrease in its hay stocks from last year. Montana and Oregon both used more of their hay stocks between December and May compared to the previous year. Washington’s hay stocks on May 1 were an outlier, up 100% over 2022 and 66.7% from the 5-year average, driven by yield improvements (up 17% from the 5-year average). Ranchers will need to replenish their hay stocks with many growing their own hay and hoping the summer shapes up for them to fulfill their operations’ needs.

In the Central Plains, hay stocks on May 1 were also heavily depleted which provides shipping opportunities for Northwest hay growers. Colorado and Nebraska experienced losses in their May 1 hay stocks from the previous year and these hay shortfalls could provide an opportunity for old-crop hay to move to these drought-stricken areas. Northwest hay has shipped as far as the Central Plains.

Limited dairy demand

Alfalfa is a major feed component for western dairies. With declining milk prices, dairies have been purchasing hay strictly as needed. In Idaho, few deals have occurred between hay growers and dairies for the new crop, but the crop is also behind, limiting available volume. Prices for the old hay crop softened in the winter and new crop prices are expected to follow suit. As dairies face tight margins, many will defer purchasing hay until later in the growing season in hopes that prices soften from 2022 records. The USDA and futures markets are predicting Class III milk prices to bottom out in June. If this holds, dairies will likely be more interested in building hay inventories in the late fall with improved milk prices.

Export carryovers will soften new crop prices

Export markets have remained slow with light demand in April 2023 due to inventory buildups in hay-buying countries and exchange rates. In 2022, the dollar strengthened against all three of the largest hay export destination’s currencies (Yuan, Yen and Won), making U.S. hay more expensive for international buyers. This led to a decrease in hay exports. U.S. growers who sold their hay to export markets were working with buyers in April to push shipment timelines back. Concerns about inventory carryover and weak buyer demand will soften hay prices.

The Northwest hay export markets also face headwinds from challenging port conditions. Negotiations between the longshoremen and western ports have reached a tentative agreement. However, some importers have started to ship directly to the East Coast due to the Panama Canal expansion and concerns over the 13-month West Coast port negotiations. This has led to a decrease in the number of empty containers available along the West Coast. It has not yet become an issue, but fewer available containers could make exporting hay from the region more difficult and expensive. The combination of these factors has made it more challenging for U.S. hay producers to export their product.

Profitability

Hay price downward correction

Inventory carryovers and better growing conditions will soften hay prices from 2022 records. Northwest alfalfa prices have closely followed the downward national trend. In early June 2022, premium quality hay in Idaho traded for over $310 per ton. In June 2023, while hay trade is just starting, supreme alfalfa in Idaho was traded for $220 per ton. Washington’s Columbia Basin supreme quality alfalfa sold for $240 per ton, down $100 per ton from a year ago. Hay producers should expect prices to continue a downward adjustment throughout the fall.

Cost of production lower

Hay production costs are decreasing as fertilizer and fuel prices come down from 2022 highs. While hay prices have softened, production cost reductions will support hay profitability. For more information on production costs, see the Crop Inputs Snapshot.

Hay slightly profitable, but faces headwinds

Most western hay growers will benefit from improvements in growing conditions, although some still face drought conditions (overall, less severe than 2-3 years ago). The quality and overall profitability of the new crop will largely depend on weather over the next two months, but favorable weather conditions are expected. Timothy hay growers may face lower prices due to built-up inventories and weakening trade demand, which will pressure prices and profits.