Plourd acknowledged that producers have different comfort levels when it comes to talking about commodities trading in general, and even the suggestion of trading alfalfa futures would make many in the industry uncomfortable.
He also acknowledged that futures contracts may not work for the forage industry, but maybe they can, and that’s what USFEC would like to find out by starting the conversation for alfalfa and hay commodities trading and see where it leads.
USFEC works under the umbrella of National Hay Association and are members that are financially invested in compress facilities based in the U.S. and who actively sell and export baled fiber products to foreign countries.
Plourd said several stakeholders need to be involved in the alfalfa futures discussion, “… the producers and growers, for one. Traders including truckers, commercial sales, co-ops, brokers and exporters for another. Then you have the demand side, both domestic and export, including dairymen, cattlemen, horse owners, etc.” Others who have an interest include consumers, box-chain stores and other retail outlets of forage-related products. Plourd emphasized the importance of each of the stakeholder groups – production, traders and demand – in the chain of effectiveness and said, “If you take any one of those [groups] … who say this doesn’t work for me and I’m not going to use it at all, then the chain fails.”
Plourd noted the changing global market environment, and changing social environment that includes instantaneous communication around the world. With increased communication, world markets have increased in volatility.
Plourd said globalization of commodity trading has worked for many commodities, and works well; however, alfalfa or hay has different challenges than other commodities – quality definitions for one.
While USDA hay grades and relative feed value (RFV) are two value markers, many of the international markets value hay color. The question then becomes: Which color of green do we use, and are we all seeing the same green?
Plourd explained that a farmer producing corn can look at a corn futures contract and get a pretty good idea of what the price of corn will be, and he can make a decision whether to sell or not. Sometimes he can look two years out and make that decision.
Alfalfa, however, is a four-year investment when planted, not a single-year investment, and the question becomes how far out can you really predict the market value for alfalfa? That brings a different challenge to an alfalfa futures contract.
Plourd said the upsides to an alfalfa futures contract could include price discovery and protecting the movement of price up and down.
USFEC has developed a committee to begin the conversation with various stakeholders in the industry to determine stakeholder interest and investigate designing a possible futures contract with the Chicago Mercantile Exchange (CME).
Elements needed in designing a futures contract include: price uncertainty, supply and demand uncertainty, deliverability of the commodity, product homogeneity (sameness of product), availability of price information and trading opportunity.
Those interested in more information or wishing to comment can visit the USFEC website or email Executive Director John Szczepanski. 
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Lynn Jaynes
- Managing Editor
- Progressive Forage
- Email Lynn Jaynes
