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Higher Hay Prices on the Horizon

25 July 2017
Rabobank

GLOBAL - Global forage demand is seeing a significant escalation, leaving US alfalfa and other hay producers in a good position and US dairy producers searching for alternatives. In a new report from the RaboResearch Food and & Agribusiness group, Dairy Analyst, James Williamson explores the source of the demand.

The report, Foraging for Higher Prices, finds seven states, Arizona, California, Idaho, Nevada, Oregon, Utah, and Washington, produce 18 per cent of US hay and nearly 90 per cent of US hay exports.

Throughout 2015 and 2016, lower milk prices, coupled with weather-related forage quality issues, resulted in building hay stocks and downward pressure on hay prices.

"This downward pressure on prices isn’t the end of the story," notes Mr Williamson.

"We’ve seen the top six hay importers – responsible for buying over 95 per cent of US hay exports –increasing their import volumes and paying a premium for higher-quality hay, supporting prices at their current levels. As a result, prices will likely continue moving in an upward trend."

The higher prices are having a significant impact on California dairies. Due to water constraints, hay production in California has decreased by a third since 2008. Producers are forced to pay higher prices and look to alternative sources.

"Water restrictions aren’t limited to California," adds Mr Williamson.

"Increasing pressure to conserve water resources around the world, specifically in areas such as Saudi Arabia, will continue to drive demand alfalfa and other hay. This is going to be the new normal."

A full copy of the report, Foraging for Higher Prices, is available to Rabobank clients and journalists.

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