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Slowing economy stunts hay prices
Farmers see
‘ripple effect’ spread from California into neighboring
states
Mateusz Perkowski
Capital
Press
October 23, 2008
 |
| Larry Gadbois, owner of Gladco Farms near Clear Lake, Wash., drives a V-rake in a field near Swan Lake in July. Hay prices are falling after many farmers have harvested and sold off much of their stock. |
Hay prices began sliding last month in California and Idaho, said Jack Getz, market reporter for USDA's Market News Service.
High quality alfalfa is selling for about $10 per ton less than it was in early September, while lesser quality hay has dropped by about $20 to $40 per ton, he said.
In Oregon and Washington, however, hay prices have been holding steady, Getz said.
Lower commodity prices indirectly affect the price of hay, because other types of feed become more competitive, he said.
Falling milk prices are resulting in reduced demand for hay, Getz said.
"The dairies don't have the income," he said.
Although the price decline is most pronounced in large dairy-producing states, it's likely to spread to other areas, said Norman Beach, vice president of the San Joaquin Valley Hay Growers Association.
"It's a ripple effect," he said. "Anything that happens in California, it's going to happen in the Western states."
Dairy farmers are increasingly substituting other types of feed for alfalfa hay, said Beach.
For example, at $200 per ton, rolled corn is now much more affordable than it was during mid-summer, when it cost $330 per ton, he said.
Apart from driving down commodity prices, the worldwide financial crisis has had indirect impacts on the hay market as well.
Banks are tightening up their requirements for credit, making large hay purchases more challenging and thus cutting demand among buyers, Beach said.
"They're asking for more and more documents from these guys," he said. "As soon as people stop spending money, everything crashes."
As the financial crisis strengthens the U.S. dollar - which is seen as a safe haven currency - it diminishes overseas demand for U.S. hay, harming the export market, Beach said.
Foreign demand for dairy products has also fallen due to the more expensive dollar, putting downward pressure on milk prices, said Don Blayney, an agricultural economist at the USDA Economic Research Service.
"U.S. exports are not looking as good anymore," he said.
Milk prices have fallen to roughly $18 per hundredweight from their most recent peak of $21.90 per hundredweight in November 2007, said Roger Cryan, director of economic research for the National Milk Producers Federation.
"It'll go lower," based on ongoing declines in the futures market, he said.
Global milk supply is higher due to rebounding production in Australia and New Zealand, which suffered from pasture-stunting droughts in the prior two years, said Blayney.
If the the world's economic problems worsen, people in emerging economies like China may be forced to cut milk and cheese from their diet, said Cryan.
"It's going to take some time to see how that's going to affect demand for dairy products around the world," he said.
Falling milk prices don't bode well for hay demand, but farmers in Oregon and Washington say they haven't been substantially affected so far.
"I haven't noticed any softening yet, but that doesn't mean I won't," said John Flowerree, a grower in Christmas Valley, Ore.
Flowerree said there's still a shortage of hay regardless of what's going on in the commodities market.
"We're at the bottom of the food chain, where the system still works," he said.
Furthermore, Flowerree is almost sold out of hay for this year, so even if the Oregon market does drop, it's unlikely to affect him until next year.
"We're on our own cycles," he said.
Shawn Clausen, a Warden, Wash., farmer and president of the Washington State Hay Growers Association, has also sold most of his hay stocks and isn't worried about plummeting prices.
"It's in short supply," he said, noting that many farmers replaced hay with commodities like corn and wheat.
Clausen is also optimistic that long-term demand from overseas will continue to increase, especially in water-starved regions like the Middle East.
"They're starting to look in our direction," he said.
Even so, there are signs that the downturn in the hay market is creeping into Oregon from the south, said Steve Kandra, a farmer in the Klamath basin.
Much of the hay produced in the Klamath basin is shipped to dairies in California, and the weakening demand is already becoming apparent to growers, he said.
"We're kind of an extension of northern California," Kandra said.
Staff writer Mateusz Perkowski is based in Salem, Ore. E-mail: mperkowski@capitalpress.com.
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