As a part of the University of Idaho Extension’s annual predictions for the state’s agricultural production, in December, Reed Findlay and Steven Hines gave an extensive 2023 hay and forage outlook for Idaho. They said 2023 is a challenging year to predict due to three factors: elevated alfalfa prices, high milk prices still at break-even margins and rising input prices that are increasing alongside higher interest costs. Fortunately, due to Idaho’s domestic dairy demand and significant role in national hay exports, producers should still have ample opportunity to navigate the hay market in 2023.

Supply

As Findlay and Hines looked at current alfalfa and forage supply, they noted that there are two categories to consider: production and stocks. On a national scale, overall hay production is down, but Idaho’s production is up by 12%, almost matching its five-year average. In fact, Idaho hay stocks rose 29% in 2022 while the rest of the Western U.S., except California, were down. This advantage added upward pressure to Idaho hay stocks, making the overall price rise. While that increase helped prices remain high last year, higher stocks may actually cause downward pressure going into 2023.

Demand

Findlay and Hines identified four main factors driving hay demand: disappearance, exports, substitute feeds and dairy. Disappearance is projected to go up due to domestic use of hay stocks here in the U.S. but is not considered the biggest factor going into 2023.

Looking to exports, the USDA states that international trade makes up 2%-3% of U.S. hay and that Idaho contributes 10% of those exports. Hay and forage exports determine the floor price for hay, thus stabilizing prices for Idaho overall. In 2022, the U.S. beat previous export rates by sending over 300 metric tons of hay overseas, 60% to China. Overall, most exports of hay in 2022 were sent to China, Japan and South Korea. The industry is hoping to see an increase in exports to Saudi Arabia and the United Arab Emirates as well. Due to Idaho’s contribution to these hay exports, it is expected that hay prices will stabilize in the state as exports continue to trend upward.

Substitute feed prices also play an important role in determining the demand for hay and forage. Alfalfa and corn share an inverse relationship in price due to their use in the dairy industry. Due to this relationship, Findlay and Hines looked at corn prices as an indicator for future hay and forage prices. In the upcoming year, they expect corn prices to rise, which may put downward pressure on current alfalfa prices. Another feed substitute they consider is range and pasture. Conditions of these grazing alternatives help determine prices for lower-quality hay used outside of the dairy industry. In Idaho, overall pasture conditions have improved due to fall and winter rain and snow and are now at average conditions for the time of year despite drought levels experienced in 2022.

As Idaho is a top dairy-producing state, hay producers here should be aware of dairy conditions. Currently, dairies are at break-even margins despite higher milk prices, because profits have been negated by higher inputs and interest rates. As discussed earlier, changing corn prices will also play a role in the quantity of hay the dairy industry will need within the state.

Price outlook

While an understanding of current supply and demand in hay and forage is helpful to producers, it is still challenging to predict what prices will do in the upcoming year. Hay prices were high in 2022, and may remain elevated into 2023, but may drop below $250 within a few months of the new year. Findlay and Hines’ key recommendations to producers were to: know cost of production, know break-even prices, keep seasonal price movement in mind and know who has the market leverage. Despite global economic uncertainty, an inflationary environment and higher overall hay production, with strong domestic and export demand, they felt producers in Idaho could still have a profitable year.