The old adage: "what goes up must go down" seems to hold true once again.
From 2007 through 2013, hay exports from the United States increased by nearly 60%.
But 2014 was a different story. Hay exports in 2014, although high relative to historical volumes, declined 12% from 2013 levels (Figure 1 and 2).
The top 5 import countries for US hay account for 98% of total US export volume. Japan is the major importer of US hay, followed by China, Korea, UAE and Taiwan (Figure 2). China leads imports in terms of US alfalfa hay (Table 1).
Figure 1. Hay being re-compressed for export from Western-Grown alfalfa and grasses.
Greater than 99% of US hay exports are from the western ports of Seattle/Tacoma, Portland, Oakland, and Long Beach/Los Angeles. The southern port of Long Beach/LA tends to be favored due to high volume of trade there, and the resulting large volume of ‘empties' sent back to Asia from that port, resulting in less expensive shipping costs.
Figure 2. Volume of US Hay Exports from Western Ports by Top 5 Destination Countries, 1998-2014. Over 99% of all hay exports are from western ports. Western ports include all ports in California, Oregon and Washington. Source: US Dept. of Commerce.
How Big are Hay Exports?
Hay exports historically had never been a large component of US hay markets, and still aren't. There was a dramatic change in 2007 with increased foreign demand with the largest growth from the UAE and China (Figure 2).
But even with this rapid expansion, exports are still a tiny fraction of the US of hay market – we calculate that total exports of hay at about 3% of US production, and alfalfa hay at 3.5% of US production in 2014 (Figure 3).
Figure 3. Share of US hay production exported, 1998-2014. Source: US Dept. of Commerce and USDA-NASS.
What caused the reduction in hay exports in 2014?
- The primary cause was a large decrease in shipments to the UAE, which has been a major buyer in recent years. However, exports to UAE dropped by over 49% in 2014 (Table 1).
- A secondary cause is likely to be the port slowdown in 2014 which reduced the ability of exporters to ship anything, including hay crops.
- High domestic prices of hay in ‘14 likely had a dampening effect on exports for some markets, where margins can be slim with a high purchase price.
- Strong US currency often results in lower margins for exports
It should be noted that exports were strong in 2013 and 2014 in spite of very high (in historical terms) hay prices domestically.
Regional Impacts are Important
Well over 95% of hay exports likely originate from the 7 western states of California, Washington, Oregon, Idaho, Utah, Nevada and Arizona. Thus exports markets have a disproportionately large effect on these states. Expressed as a percentage of production of those states, grassy hay exports represent about 37% of production, and alfalfa hay exports about 11.5% of production (Figure 4). In some regions such as the Columbia Basin of WA-OR and the Imperial Valley of California, exports may amount to over 1/3 of production.
Although more than ¾ of Western-grown hay crops are alfalfa hay (Figure 5), more than half the exports are made up of grassy-type hays (Figure 6). These grasses consist primarily of timothy hays from the Pacific Northwest, grass seed straws from Oregon, cool season grasses (orchardgrass, ryegrass) from perennial stands in many western states, some oat hay, and sudangrass, bermudagrass and kleingrass hays from the desert regions of southern California and Arizona.
The GMO Controversy
In 2014, a number of export shipments to China were rejected by Chinese authorities due to the presence of a non-approved GMO trait –Roundup Ready Alfalfa (RRA). This trait is not approved in China, and so low level presence can result in rejections if detected. RRA now consists of a large component of Western hay production, but exporters largely reject RRA due to the sensitivity of their markets. Several export companies and hay growers have been reportedly hurt financially by this problem in China. However, in spite of these problems, the value exports of alfalfa hay to China increased by 30.5% in 2014 compared with 2013 (Table 1).
What about the Future of Hay Exports?
Several major trends should be watched here in the coming months and years:
- Softening of US hay prices due to low corn prices in 2015—they tend to be correlated
- Low US milk prices in 2015 vs. 2014, again softening US prices for hay
- Note that lower hay prices may improve export opportunities
- Recent dramatic reduction in milk prices in China, which may soften demand
- Drought in California/Nevada which is likely to curtail hay acreage and production, placing upward pressure on hay prices over time
- Possible approval of the RR trait in China, opening up a greater percentage of US production to exports (exports currently largely reject GMO alfalfa)
- The relative strength of US dollar compared with other currencies, which make exports more difficult
- Continuing speculation about Saudi Arabia actions which might be similar to those taken by UAE 7 years ago, resulting in an instantaneous markets for hundreds of thousands of tons. However, that has not materialized for the Saudi Kingdom as of yet.
These are complicated equations which make prediction of export activity problematic at best. It is our view that hay exports are likely to continue to be an important component of the western hay market – although fluctuations may be observed year-to-year in volumes and value. There are long term trends at work here – the rapid expansion of Chinese dairies and dairy demand, inability of China to fully meet its own forage needs, land-limited Japan, the inability to produce high-quality hay in many Asian countries due to weather, the high quality of western hay products, limitations of water supplies in the Middle East and Asia, and the relative low cost of Asian-bound ocean freight. The latter is not likely to reverse as long as the Asian trade balance remains firmly lopsided in favor of the Asian exporters.
Politics of Hay Exports
The politics of hay exports should be watched, since several voices have consistently criticized the exports of ‘virtual water' in the form of alfalfa hay. Especially during drought. Several news sources including BBC (http://www.bbc.com/news/magazine-26124989 ), National Geographic http://news.nationalgeographic.com/news/2014/01/140123-colorado-river-water-alfalfa-hay-farming-export-asia/ Pacific Standard Magazine http://www.psmag.com/business-economics/trading-virtual-water-3650 have weighed in in 2014. This argument was most championed by an Arizona author Robert Glennon, who criticized the export of virtual water in the form of alfalfa hay https://www.hcn.org/issues/46.7/how-we-export-our-water-to-asia and in a Wall Street Journal article in 2012 http://www.wsj.com/articles/SB10000872396390444517304577653432417208116 .
The narrowness of this argument, which was specific to alfalfa, (ignoring the huge volumes of other crops exported), and ignoring the obvious question of the of ‘virtual water' imported in the form of manufactured goods or foods imported from many countries was addressed in earlier blogs. http://ucanr.edu/blogs/blogcore/postdetail.cfm?postnum=8825 and http://ucanr.edu/blogs/blogcore/postdetail.cfm?postnum=12770
However valid (or invalid) the arguments about ‘exported water' may be – with regards to alfalfa hay, it should be tempered by the reality that only 3.5% of US alfalfa hay is exported. The primary recipients of US-grown alfalfa hay are still domestic dairy producers.
Figure 4. Ratio of Western Exports to Western Production shown as a Percentage. Western states include Arizona, California, Idaho, Nevada, Oregon, Utah and Washington. Western ports include all ports in California, Oregon and Washington. Source: US Dept. of Commerce and USDA-NASS. Note: although some exported hay comes from other states, it is thought that a vast majority originates in these states.
Figure 5. 2014 Hay Production by Type in 7 US Western States (Arizona, California, Idaho, Nevada, Oregon, Utah and Washington)
Figure 6. 2012 U.S. Export of Hay Through Western Ports by Type (California, Oregon and Washington)