Hay exporters struggle in bad economy

YAKIMA — First flood waters soaked 5,700 tons of grass straw in early January. Then fire roared through a hay storage barn, causing losses of about $1.5 million.

It's been a tough month for Calaway Trading Inc., one of the largest hay processors and exporters in the Pacific Northwest.

The year ahead could continue to be a struggle.

Exporters are seeing their supplies pile up, due to falling milk prices and the global economic crisis, just months after they experienced record prices for hay and other feed.

"The Pacific Northwest priced themselves out of the market," Calaway CEO Jeff Calaway said.

The region has long been known for its premium alfalfa and timothy hay, prized by dairies and horse breeders in Pacific Rim countries like Japan and Korea. About 20 percent of Pacific Northwest hay is exported, and in Washington state, exports account for as much as 35 percent of sales.

But spiking hay prices forced overseas dairies to turn to southern California, Canada and Australia for cheaper feed.

In 2007, Pacific Northwest exporters sold alfalfa for about $130 per ton. The price skyrocketed to $230 per ton by midsummer 2008, said Jack Getz of the USDA Market News office in Moses Lake, which tracks livestock and hay prices.

"There's a perception that Northwest hay is higher quality," Getz said. "There's probably some truth to that, but when the dollars get farther apart, you're willing to sacrifice some quality."

Exporters generally buy from the farmers before or during the harvest, then sell the crop all year until the next crop is harvested the following summer.

With some of the expensive 2008 crop still in sheds awaiting sale, exporters could face steep losses by selling it at today's lower prices.

The going rate for big bales of premium export alfalfa is now $180-185.

"Dairymen can't afford to buy hay. They're just buying hand to mouth now to keep expenses down," Getz said. "Anybody who has hay that's not sold in the fall or the first part of the year, is just going to be waiting to get it sold as the prices keep slipping."

Ward Rugh Inc. exports 95 percent of its timothy hay, alfalfa and Sudan grass. President Rollie Bernth said sales volume at his company will likely fall 20 percent to 25 percent this year.

The reason: He just didn't buy as much hay, and he's glad he didn't.

"The unfortunate part is that we've had to give up significant margin just to get things moving," he said. "We've had to lower prices $20-$30 a ton on the timothy hay."

Anderson Hay and Grain Inc. processes alfalfa, timothy hay, bluegrass straw and grass straw at facilities in Ellensburg and Oregon's Willamette Valley. Ninety percent is sold overseas.

"When we saw the kind of pricing that we saw last summer, it was pretty obvious to us that somewhere along the line this was going to hit a wall," President and CEO Mark Anderson said.

The company was as prepared as it could be for the downturn, he said. He doesn't expect record prices again in 2009.

"At a minimum, we'll manage a complete overcorrection," he said. "There's a lot of money being lost in the business."

Counting the fire and the flood damage, Calaway estimates his losses will be in the six figures. Milk prices and currencies will surely play a role in determining how much.

He also said California's hay supply could very well decline along with its water supplies.

Facing a massive drought, farmers there already are choosing not to plant some crops, and water managers have said supplies could be cut to help save permanent crops, such as tree fruit.

"That is going to make California a net consumer of alfalfa in 2009," Calaway said. "Only time will tell what kind of impact that has on us."

Some farmers, meanwhile, are responding by planting less hay, Washington's No. 6 crop in 2007, valued at $517 million.

That might be a good thing, since they're unlikely to see prices above $200 this year, said Drex Gauntt, a Kennewick farmer and incoming president of the Washington Hay Growers.

"Hopefully, farmers have been diligent with what they were able to earn this last year," he said. "You can't count on that every time the market goes down."