Northwest Situation
The Dec. 1 Hay Stocks report reveal hay producers began winter with low inventory. Mild weather in December and January eased concerns over hay supply. However, weather conditions deteriorated in February. Unusual snow and cold weather drove livestock producers to feed more hay than normal.
Montana tallied the second coldest February on record. Despite the cold weather, hay supplies are sufficient and hay prices remain stable. Like last year, much of the state remains blanketed in snow. That may not be a problem. Late snow cover resulted in the third largest hay crop since 1909 when record keeping began.
In Idaho, anecdotal reports suggest low quality hay inventory is scarce. Supplies of high quality alfalfa remain adequate. However, the remaining inventory is of higher quality than exporters usually buy. Dairies continue to struggle through low milk prices and have little appetite for expensive high-quality hay. Inventory on dairy farms is sufficient to get producers through to fall. Milk futures suggest modest improvement in dairy profitability. Many dairies will draw on feed inventory until milk prices and the associated cash flow improves. Sales to California continue as the state began winter with 440,000 tons less in inventory than average.
In the Washington-Oregon Columbia Basin, low quality feeder hay supplies were exhausted before February snow storms blanketed the region. In the absence of feeder hay, cattle producers had to feed good- to premium-quality alfalfa. This drew on already tight supplies of exportable alfalfa. Dairies remain tepid participants in hay markets. Despite declining exports and unprofitable dairy returns, hay inventory is sufficiently low to drive hay prices higher. USDA Agricultural Marketing Service reports premium and supreme alfalfa trading around $225 and $260 per ton, respectively. Spring field work is delayed as snow cover persisted a month later than normal. First cutting will likely be delayed, thereby shortening the harvest window in 2019.
Like in Washington, supplies of low quality hay in the Oregon-California Klamath Basin are exhausted. At the stack, low quality hay is trading around $175 per ton. High quality hay is trading for $240 to $250 per ton. Irrigators in the region are more optimistic as February precipitation bolstered mountain snowpack.
National Situation
According to the Dec. 1 hay stocks report the U.S. began winter 13.5 percent below the five-year average hay inventory. Average to above average winter feeding across much of the U.S. will maintain elevated hay prices. Flooding across the Midwest following the historic “bomb cyclone” will further tighten already dwindling hay stocks. Abnormally wet conditions on the East Coast will delay spring planting and field work much the same as last year. High quality hay will flow east to meet feedstore demand. Cattle hay will be drawn the same direction and may flow from Montana, tightening what would otherwise be average hay stocks.
International Situation
Chinese trade negotiations directly affect Northwest hay producers. Normalized relations between the U.S. and China will be a boon to Northwest hay producers. Elimination of tariffs will put Northwest producers back on even footing with alfalfa produced in Africa and Europe.
Perhaps more important are the USMCA negotiations. The U.S. dairy industry has been struggling for the last four years. Mexican tariffs on U.S. dairy products continue to weigh on milk markets. Resolution of Section 232 steel and aluminum tariffs and implementation of USMCA will provide dairy producers the tailwinds required to actively participate in hay markets.
U.S. Hay Exports
Alfalfa exports fell 306,000 tons year over year due in part to trade strife. However, Dec. 1 hay inventory suggests there were a million fewer tons in inventory. Even if the trade war had not come to fruition, exports would have been lower because of low supplies and strong domestic demand.
While exports to most Northwest trade partners are lower (likely a result of lower inventory), exports to China decreased a whopping 25 percent. Exports to China trailed in the second half of the year in the face of tariffs.
Saudi Arabia provides a bright spot in the market as the U.S. exported 481,000 metric tons to the country in 2018. USDA Foreign Agricultural Service projects growth to continue as irrigation resources are used for food crops, not forage crops. However, exports to Saudi Arabia come from the Pacific Southwest, not the Northwest.
Grass hay exports eased in 2018 as well. The largest losses came in South Korea, which restricted grass hay import quota to protect their domestic rice straw industry. Inventory of timothy hay is low, though not to the extent of alfalfa. Some lower quality second-cutting timothy remains on the market but may have moved to feed cows in the Columbia Basin.
Australia
According to the Australian Fodder Industry Association, dry and frosty conditions in South Australia, Victoria and New South Wales forced producers to harvest grain crops for silage and hay. This will bolster supplies of hay and silage for domestic use in eastern Australia. In some instances, yields were so low that fields were grazed instead of harvested. The market remains at a standstill as buyers resist higher hay prices. Growers anticipate demand will outstrip available supplies.
In Western Australia, late rains helped finish cereal crops. However, some frosted grain crops were made into hay. Despite average hay yields, a large portion of oaten hay was rained on early in the harvest season. Exports from Australia eased as limited volumes in eastern Australia combine with rain-damaged hay in Western Australia. There will be little carryover to the next Australian crop. The world now looks to the U.S. harvest to begin. Until then, demand will continue to outpace supply of available forage crops. Lower exports from Australia favor Northwest timothy export demand and pricing for the 2019 crop.
Spain
Spanish exports of dehydrated alfalfa reached a record 1.3 million metric tons in 2018, up 180,000 tons year over year. The National Dried Alfalfa Producers Association reports the Chinese market has been reactivated since China levied retaliatory tariffs on U.S. alfalfa. Total exports from Spain to China tallied 234,000 metric tons, up 70,000 tons year over year. Exports to northern Europe increased following drought conditions. So long as tariffs between the U.S. and China remain in place, Spain will enjoy increasing market share.
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