Forage Fodder: January 2025

Friday, January 31, 2025

The status of Western hay markets

Josh Callen, market analyst and author of The Hoyt Report, gave attendees at the California Alfalfa and Forage Symposium an update on hay markets in the western U.S.

Hay prices continued to lower in 2024, a continuing trend since their peak in 2022. Mixed milk prices and less alfalfa utilized in dairy rations have contributed to the price downturn. Feed prices, particularly alfalfa, are connected to corn and canola prices, which have also been trending downward (see Figure 1). As drought conditions have eased in the past few years, hay production has picked back up, lessening pressure on the market. An additional result of peak hay prices in 2022 is that, due to hay prices being prohibitively high, dairy farmers figured out a way to use less alfalfa in their dairy rations. “Some dairies say they like to use canola as a substitute for high-protein alfalfa in some instances,” Callen said. “So as those prices go down, that creates more competition in the market for it.”

Another contributing factor is softer demand from the export markets, China in particular. A stronger U.S. dollar put a dent in exports, especially to Asian markets and gave competing exporters a bigger advantage. “When the dollar is so high against the yen and especially against the Korean won lately – the dollar has reached a 20-year high – that really makes our products unaffordable for a lot of those customers over there.”

The dairy industry as a whole is struggling in China. In 2018, China began artificially building up their dairy industry. Although milk is, historically speaking, not a food staple in China or the other East Asian countries, they invested in westernizing and updating their dairy industry. Over the past few years, the bubble has begun to burst. They have been culling a lot of cows and struggling with lower domestic milk demand and consumption. This in turn affects the demand for hay exports.

Inflation has also been taking a toll on commodity prices – not just hay, but across the board. “We’re back down to 2019 prices with 2024 costs. That's been a big challenge for a lot of growers,” Callen said. The logical result of this cost of production pressure would be a reduction in alfalfa acres planted, but alfalfa acres in the West have already been decreasing in recent years, leading to the questions “Can they go any lower?” and “What do they choose to replace alfalfa?” Outside of California, the options for crop rotations are relatively limited. “At the same time, potato prices are down, almond prices are down, just kind of general commodities are down,” Callen explained. “So it's a question of, 'If you are going to rotate out of alfalfa, what do you go to?' There's not a lot of really good options.”

The Columbia Basin was especially impacted by the downturn in the export market. Much of the hay grown in that area goes to exports. “It's starting to stabilize, especially if you're looking for green, exportable hay. But through most of the summer, the price, especially for those lower grades, was pretty much softer month over month,” Callen said. “When you see the downturn in that export market where they're so dependent on it, it really hit them pretty hard. Same thing for the Imperial Valley; those regions that are really dependent on the exports really took this downturn pretty hard.”

A little good news

Timothy hay became a bright light in the hay markets in 2024. With lower volumes of alfalfa available, there was some competition for timothy hay among buyers that helped elevate prices. The pet food segment came through as well, looking for product in Idaho and Wyoming and paying top dollar. Callen said he’d heard from a seed supplier that they’d sold out of timothy seed quickly in the fall, so there will likely be more timothy hay on the market this summer. There is also a growing market of hay exports from Canada, supplying timothy and alfalfa for the horse racing industry in Florida.

Exports are up 6% from last year, which is still down from the previous year. Exports to Asia were up slightly compared to last year and exports to the Middle East were down. Callen noted the volatility of the export market, particularly in the Middle Eastern countries where much of the exports are government-funded, as well as China’s big rise and sharp drop in 2023 (Figure 2).

Callen brought up some pertinent issues that will affect hay growers going forward, the first being the smallest U.S. cattle herd since 1961. If there are fewer mouths to feed, there will be less demand on the hay market. Another question, will the U.S. dollar continue to stay strong? A stronger dollar tamps down export opportunities, as has been demonstrated with the Asian markets. What impact will that have long term? And finally, with another Trump administration in place, what will that mean for trade relations and market conditions on a domestic and global scale?