The World Wants Our Hay

By Rick Mooney
Progressive Farmer Contributing Editor

Once considered a mostly local commodity because of bulky physical characteristics that make handling and transportation difficult, an increasing amount of U.S. hay has been moving to overseas markets during the past five years. High demand worldwide for quality forages, cheap ocean-shipping rates and innovations in hay-compression technology are pushing the increased exports.

Numbers from a University of California (UC) report released last year tell the growth story in a nutshell: From 2004 to 2008, the U.S. shipped an average of 2.8 million tons of hay overseas annually. Between 2008 and 2013, the average bumped up to 4 million tons annually, an increase of 46%. "Any way you look at it, it's been phenomenal growth," says Dan Putnam, a UC Extension forage specialist and one of the report co-authors.

CHINESE DEMAND

Increased hay shipments to China have been a driving force for much of the overall growth. Chinese imports of U.S. hay in 2007 totaled a mere 2,400 metric tons, according to the USDA. In 2013, the U.S. shipped 779,000 metric tons of hay to China. (By comparison, Japan, historically the largest customer for U.S. hay, has bought an average of 1.8 million metric tons annually since 1998.)

The Chinese government is intent on making more meat and milk available to the country's growing population. As a result, China's dairy herd increased from 7.1 million head to nearly 9 million milk cows between 2000 and 2013.

Feeding all of those cows requires lots of high-quality hay, and that creates a challenge for the Chinese. The country's major alfalfa-producing regions are in the north and west. Its dairies are located mostly in the south and east, thousands of miles away. While China is investing heavily to improve its transportation infrastructure, it's still cheaper for dairies to bring alfalfa in from abroad than to move hay around within the country.

EMPTY SHIPS

The imbalance of trade between the U.S. and China plays a role. Companies owning the ocean-going container ships bringing Chinese-made consumer goods -- everything from electronics to pajamas -- to the U.S. West Coast are willing to offer extremely low rates to fill their ships with goods for the return trip.

"It's now cheaper to ship a ton of hay from Long Beach to Shanghai than it is to truck that hay from southern California to dairies in other parts of the state," says Dan Undersander, a University of Wisconsin Extension forage specialist. Undersander has traveled to China several times to work with forage researchers and farmers.

Currently, most Chinese producers lack the expertise to grow the kind of high-quality alfalfa needed to fuel milk production in high-producing dairy cows. European and North American equipment manufacturers do a brisk business selling forage-making machinery in China, and the government is offering lucrative subsidies to farmers who grow alfalfa. "But in a lot of cases, people haven't had the training in how to adjust or use the equipment," Undersander said. "And there are a lot of people getting into [alfalfa production] right now who don't really have a good idea of what needs to be done."

Lack of a sophisticated pricing structure for quality forages in China is also an obstacle. "At this point, growers aren't getting a premium for producing quality hay, so it's difficult for them to justify growing it," Undersander said. "That's one of the reasons dairy producers there have been willing to pay such good prices for U.S. hay. When they buy from us, they know they're buying a high-quality product from a reliable source."

Some observers predict it will be five to 15 years before China can produce enough quality forages to meet the needs of its domestic dairy industry. "They'll go through years of problems, just like we did," Undersander said. "But I do believe it will happen eventually."

MIDDLE EAST

The United Arab Emirates (UAE) has been the other major growth market for U.S. hay. Confronted with extremely limited water resources, the country's leadership decided to discontinue irrigating forage crops in 2008. At the time, U.S. hay shipments to the country totaled 37,000 metric tons. By 2012, that had increased to 743,000 metric tons.

Other nations in the region appear ready to follow suit. Saudi Arabia plans to discontinue all new plantings of alfalfa by 2016. By some estimates, the kingdom will have to bring in between 3 million and 4 million metric tons of forages to meet its livestock production needs. "It's potentially a far bigger market than the UAE," UC's Dan Putnam said. He adds that while Spain and North African countries will likely supply some of the Saudis' forage needs, "The U.S. will definitely be in position to participate in the market."

What this means for U.S. growers and marketers varies by region. Putnam estimates between 4 and 5% of total U.S. hay production is now exported, up from about 2% a decade ago. "As a percentage, it's not big enough to influence markets and prices nationwide," he said.

But in Western U.S. states, the impact is much greater. As of 2012, about 12% of alfalfa and 30% of grass hay produced in the region were shipped overseas. In areas close to major West Coast ports, such as the California Imperial Valley and the mid-Columbia River Basin of Washington, at least 30 to 50% of the hay produced is exported annually. "In the West, exports have now become a pretty significant market factor," Putnam said.

For many Western hay growers, including David and Clyde Sharp, owners of Lyreedale Farms, based near Roll, Ariz., the growing export market has been a game changer. In a typical year, the Sharp brothers grow alfalfa on 1,500 of their 2,400 irrigated acres. Until about 10 years ago, they sold nearly all of their alfalfa to dairies and beef feedlots in Arizona and California.

But as the export market began to blossom, the Sharps found themselves selling an increasing percentage of their production to export firms based in Southern California. Now, as much as 10% of the hay they produce from 10 or 11 cuttings per year heads overseas. "The exports give us another option of where we can sell our hay," David Sharp said. "And that bolsters our market. If you were to take exports out of the picture, it would have a significant impact."

WHAT ABOUT US?

Not everyone views the growth in hay exports as a positive. "Domestic dairy producers don't necessarily like to see so much hay going for export because it means more competition and higher feed prices for them," Putnam said. He notes that average alfalfa hay prices in California could approach $400 per ton this year, nearly double what they were just a few years ago. While export growth has undoubtedly contributed to the price spike, other factors -- including a string of poor weather years and a steady decline in the number of acres planted to alfalfa in the region -- have been more important, he said.

Discussions about the relationship between hay exports and water can also be contentious. It takes a lot of water to grow alfalfa, and water is a scarce commodity in many parts of the West. With California and several neighboring states battling a severe multiyear drought, some question the wisdom of exporting so much alfalfa.

It's an argument Arizona grower David Sharp doesn't understand. "People will ask, 'Why are you selling all this water overseas?' Nobody has a problem when we talk about selling soybeans or corn or wheat overseas. And nobody seems to have a problem when we make microchips and sell them overseas, even though it takes a tremendous amount of water to make microchips.

"But they do have a problem when we sell a forage product overseas. I think it's because they simply see [alfalfa] as animal feed. We see it as a protein source. The alfalfa that we sell allows people in China the opportunity to have protein, or at least a different source of protein [meat or dairy products], in their diet. To us, it's about the end result."

WATER ISSUES

Robert Glennon, a University of Arizona law professor specializing in water policy and author of "Unquenchable: America's Water Crisis and What to Do About It," said debate on the issue should focus less on alfalfa or exports and more on developing a sound water policy. He points out a large percentage of the U.S. grain being exported is grown in parts of the U.S. where water scarcity is not generally a major issue. "There's a world of difference between the Farm Belt and California," he said. "In areas where you have mostly dryland farming, no one else needs the water that's used to grow crops. In most of the West, there are lots of other people who would like to have the water."

One possible solution, Glennon said, would be to change state and federal laws to give farmers the flexibility to fallow some of their land in certain years and sell their water rights to cities needing water. Currently, in many hay-producing areas of the West, if farmers elect not to use their water allotments to grow crops in a given year, the water goes unused.

"We should be looking for ways to expand markets for farmers, not curb them," he said.

FUTURE ISSUES

Other headwinds are likely to develop from time to time. U.S. alfalfa shipments to China sagged some this past summer after Chinese regulators launched stringent testing measures to detect the presence of genetically modified organisms (GMOs) in imported hay. Concerned that hay (on which freight had already been paid) would be rejected due to differences in testing protocols between the two countries, many U.S. hay dealers suspended shipments to China.

While most market watchers expected China would eventually relax its protocols, forage specialist Dan Undersander said the episode shows just how sensitive export markets can be to developments in the international trade arena. "U.S. competitors in the international hay market have been pushing [the Chinese] on this, hoping to gain an advantage in getting more of their hay into the country," he said. "The international market can be uncertain at times."

For the long-term, most knowledgeable observers expect U.S. hay-export growth to continue pushing steadily upward. Along with efforts in China, the UAE and Saudi Arabia, U.S. export firms are working to develop markets for hay products in places like India, Vietnam and other countries.

"With growing populations and increasing wealth worldwide, the demand for protein, in the form of meat and dairy products, will continue to increase," Putnam said. "U.S. hay will be a big part of the growth."

(ES/AG/CZ)

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