Hay prices hold steady, but drought and trade headwinds ahead

Market conditions remain difficult for hay producers in 2026, with prices offering little relief after several years of pressure. USDA estimates suggest hay prices will be largely stable compared to a year ago, an outlook that is less than optimal for western producers who face elevated production and water costs. Western alfalfa hay averaged $180 per ton in 2025, down $5 per ton from the 2024 average price received, though notable regional differences persist. Oregon and Washington were clear outliers, with average prices declining $16 per ton and $26 per ton, respectively, reflecting weaker international demand.

Dry conditions across much of the Western U.S. are adding uncertainty for hay growers. Drought-affected alfalfa acreage increased to 42% as of March 3, raising concerns about yield potential and irrigation availability heading into the growing season. These conditions have been compounded by unusually warm temperatures across the region, with California recording its sixth warmest January on record, Idaho its eighth, and Arizona and Oregon their fifth, further straining soil moisture and reservoir recharge.

At the same time, negotiations over Colorado River water allocations remain unresolved between seven western states. The original Nov. 11, 2025, deadline to reach a new operating agreement was postponed to mid-February to allow for additional negotiations, but that deadline has also passed without a deal. It is increasingly likely the federal government will impose its own operating plan in 2027, raising concerns over how water reductions will be allocated.

These negotiations come amid a poor snowpack year across much of the West. Despite conservation efforts, water levels at both Lake Mead and Lake Powell continue to trend lower. Without normal winter runoff, conditions are expected to worsen. If existing agreements remain in place, Arizona will face an 18% mandatory reduction in water allocations due to low reservoir levels. Compounding these pressures, the Imperial Irrigation District of California has indicated that its Drought Impact Program (DIP program) will likely be reduced to roughly half its size from last year, as strong participation has depleted available funding. Enrollment will be capped at 50% of eligible acres.

Export uncertainty persists.

Export markets continue to be a significant source of pressure for the U.S. hay sector. Hay exports declined by 16.6% year over year in 2025. Exports to the top four destinations of Japan, China, South Korea, and Saudi Arabia fell by 14%, 21%, 3% and 30%, respectively. Exporters have faced prolonged price volatility and heightened currency risk for nearly three years. While inventories have moderated compared to the buildup seen over the past two years, export demand remained sluggish throughout much of 2025. Some improvements emerged late in the year, with export volumes rising in December to their highest level in six months. Anecdotal reports suggest this momentum has carried into early 2026. Even so, the export outlook remains uncertain and continues to pose challenges for the U.S. hay industry.

Profitability

Hay (alfalfa): Breakeven profitability - Neutral 12-month outlook
Hay (timothy): Breakeven profitability - Neutral 12-month outlook

Alfalfa hay markets are expected to operate near breakeven in 2026, as relatively stable but low prices are magnified by high production costs and continued softness in export demand.

Timothy hay markets are expected to operate near breakeven in 2026, as steady but limited demand is offset by elevated production expenses.