Northwest feeder hay inventories reduced, but dairy market remains slow

Northwest hay producers are operating at or below breakeven margins, but the 12-month profitability outlook is improved for those able to start with a clean inventory slate and keep a lid on costs, according to the latest Northwest Farm Credit Services’ Hay Market Snapshot report.

Cold and wet conditions across the region increased beef cow-calf producer demand for lower quality hay during the first quarter of 2017. That’s helped cut into large feeder hay inventories going into the 2017 production season. However, with ample hay and silage inventories, most dairies in the region remain out of the market.

Looking ahead to spring, cooler weather may slow plant emergence from dormancy and drive production levels lower. Double-cropping rotations may also be limited by a potentially shorter growing season.

Early cuttings of alfalfa in California faced periodic rainfall, challenging the production of high-quality hay. High-quality hay may flow from southern Oregon to meet Californian demand.

U.S. hay export volume increased 13 percent in 2016, with nearly all export growth coming from increased alfalfa sales. Saudi Arabia outpaced China as the fastest growing forage export destination in 2016. However, most of that supply will continue to be sourced from the Pacific Southwest. Traditional grass or straw markets such as Japan and South Korea had negative or slow growth in 2016.

2017 growing season input costs

Seperately, Northwest Farm Credit Services’ Crop Input Market Snapshot report indicated last fall’s record crop yields helped producers prepay 2017 fertilizer purchases, even though low commodity prices cut into farm incomes. That fertilizer demand resulted in an increase in potash, phosphate and anhydrous ammonia prices, but prices still remain significantly below 2015-2016. The outlook for crop inputs is mixed as world supply and demand of fertilizer and other inputs continue to rebalance.

Land values: Limited supply, steady demand

Finally, Northwest Farm Credit Services’ Land Values Market Snapshot report notes limited offerings and steady demand are pressuring agricultural land values higher, with good quality cropland values increasing the most. Preliminary sales data indicate mostly increasing land values in the first quarter of 2017. Key risks in 2017 include falling commodity prices, higher interest rates and lower net farm incomes.