My Perspective - It has been a challenge forecasting hay market prices since last October due to the many negative events and developments. My alfalfa hay market forecasts since then, while below a year ago, have been high most of the time as I look for positives in a sea of negatives. I realize there are severe losses in the dairy industry but some talk I have heard this week needed a response.

My forecast of two months ago of $160 to $170 on first cutting Supreme alfalfa hay in the Imperial Valley will be high. In the last couple of weeks I thought the market would be in the $135 to $150 range and that is still a little high. I have heard talk this week that some dairies only want to pay $100 to $120 fob on top first cutting alfalfa in the Imperial Valley. My response to that is that if you want to kill the goose that produces alfalfa hay golden eggs, that will do it.

The bottom line is that $9.50 milk and extra old crop alfalfa hay supplies will not last forever. Even if we cull 100,000 additional cows (above the regular cull rate) from the California dairy herd, there will still be 1.7 million cows left. The dairy industry in the West needs hay growers like the growers need the dairies.

In reality, the buying frenzy and record high alfalfa hay market a year ago caused more harm than good. However, it would not be in the best interest of the dairy industry to try and push the alfalfa hay market down to levels where growers look for other options than growing hay.

I’ve already discussed the drought scenario in central California but another issue is that if first cutting alfalfa hay prices are very depressed, some growers will sell their water. Irrigation water will bring a premium price in the central valley this season for permanent, high value crops such as Almonds and pistachios.

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I believe alfalfa hay acres in California will be down in 2009 mainly due to reduced acres in central California because of irrigation water shortages. My estimate is 920,000 alfalfa hay acres in 2009, down 30,000 from 2008.

Note how alfalfa appears to be following a boom-bust cycle — in the same way as almonds (prices down 75%), real estate (down 30%), etc.

Bottom Line: The longer the lead time between making a decision and realizing the costs/benefits of that decision (alfalfa crops last 3-4 years; almond trees need 3-4 years to fruit; real estate developments take 2-3 years to come to market), the bigger the problem of missed forecasts.

Note that it took Metropolitan Water District of SoCal 15-20 years to recover from their mistaken estimates of demand from the Colorado River Aqueduct. Keep those numbers in mind when you think about new dams — or the Peripheral Canal.