I routinely track the hay fundamentals at a high level to generate supply and demand balances. This, in turn, drives my alfalfa price forecast, which is an important part of the dairy ration. But after reading the article Alfalfa and almonds are in a battle for water about the ongoing drought and impact on alfalfa and almond production in California, I decided to dig a little deeper on the situation.

Alfalfa acres harvested in the U.S. have generally been trending lower since 2000. Acreage for other hay has generally been trending downward, too. There is some price sensitivity to acreage. If alfalfa prices get high enough, farmers seem to plant more of it the following year. As for this season, USDA is estimating a small drop in U.S. alfalfa that may also have some correlation to high grain prices and more interest in those crops.

One downside to alfalfa is that it is perceived as a thirsty crop. Part of the reason is because, where the climate can support it, alfalfa is grown year-round. If farmers are growing corn or wheat year-round, they would use more water as well.

Second, alfalfa has a relatively high yield per acre compared to other hay, which requires more water to grow. So you could argue that alfalfa, as it is being grown in places like California, is taking a lot of water, but it isn’t dramatically more water per unit of output than what you would get with other crops.

With that said, the number of acres of harvested alfalfa in California has been trending sharply lower since 2002. California alfalfa acreage is down 50% since 2002, while alfalfa acres in the rest of the country are only down 28.5%. The Hoard’s Dairyman Intel covered it well; the story behind the decline in California alfalfa acreage is tied to the limited water resources and rise in almond production in the state.

Yields hold nearly constant

Acreage is only half of the production story; the other half is yields. In warm states, where the alfalfa can be grown year-round and is often irrigated, yields can be in the 7 to 9 tons per acre range. In colder states, where the number of cuttings is limited by the weather and where irrigated alfalfa fields are less common, yields are typically down in the 2-to-4-ton range. But what really surprises me about alfalfa is that those yields are relatively stable. For instance, the difference between the highest yielding year in California and the lowest yielding year is only 7.5% over the past 20 years. At the national level, the corn yield has varied by 43% over that timeframe.

There is some obvious concern that the drought in California and throughout much of the western U.S. is going to hurt hay and alfalfa yields. When I compare the Palmer Drought Index for California against California alfalfa yields, I have a hard time finding a statistical connection between the two. California was very dry in 2014, yet yield was only slightly below average. California was on the dry side in 2020 as well, and the alfalfa yield matched the highest level seen in the past 20 years.

There is always a risk that “this time will be different.” Maybe continued pressure on water resources means water gets diverted to other uses this time, but if this time is like past droughts, the impact on yield may be limited.

How are California dairy farmers coping with fewer acres of alfalfa?

This simple answer is they are feeding less. The California Department of Food and Agriculture (CDFA) once published a breakdown of dairy rations, though they stopped in early 2018. There was a clear downtrend in the amount of alfalfa included in Holstein rations from 2013 to 2018, and even the amount of alfalfa going into dry cow rations started to trend down in 2017 and 2018, too. This year we’ve heard anecdotally about farmers in the state trying to include more almond hulls and kick some alfalfa out of the ration.

If the drought dents alfalfa production, will there be enough for the dairies?

USDA is forecasting harvested alfalfa acres to be up 22% this year, rebounding from an 18% decline last year. If we assume the yield will match the five-year average, then California alfalfa production will be up about 19% this year to something around 8.1 billion pounds.

If dairy farmers are still feeding the same amount of alfalfa as they were in early 2018, then the dairy herd is only absorbing 4.2 billion pounds of alfalfa in the state, or a little over half of the production. If USDA is right on the gain in acreage, then production should be satisfactory this season, but the gap between production and dairy usage has been trending lower, and California dairies may become dependent on alfalfa from nearby states if the trend continues.

While alfalfa production might be up in California this year, nationally I expect alfalfa and hay production to be down slightly from last year and exports will be steady to higher. There is a strong relationship between the amount of hay remaining for U.S. consumption and the price of alfalfa. We’re looking at a relatively tight hay market this year and that should keep the price elevated. While alfalfa prices are relatively high, they don’t look high enough to boost national acreage next year, so the supply is expected to stay on the tight side into 2022 and 2023, as well.
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(c) Hoard's Dairyman Intel 2021
July 26, 2021
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