Global Crop Markets with Implications

for Alfalfa

Western Alfalfa & Forage Symposium

December 12, 2011

Las Vegas, Nevada

Daniel A. Sumner

University of California Agricultural Issues Center

Main Points • Crop prices have been very high

• Both supply and demand conditions have

contributed to tight markets

• Most projections indicate continued high

prices

• There is always uncertainty about the future

• Alfalfa is linked to other crops and dairy

markets

• For now, prospects are for relatively high

prices for much of the next decade with

normal amount of flux

U.S., China and India population, 1980-2010 with projections until 2030

World population is now 6.9 billion and will reach 8.2 billion by 2030

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2009 Crude protein tonnage in world harvested crop

production, top 8 crops

Crop

Production Effective crude

protein content Crude protein

Share of crude

protein available in

top 15 harvested

crops

(million tonnes) (percent) (million tonnes) (percent)

Wheat 682 12.8 87 21.6

Soybeans 222 34.8 77 19.1

Corn 817 8.3 68 16.7

Rice, paddy 679 7.3 50 12.2

Barley 150 11.6 17 4.3

Rapeseed 62 28.3 17 4.3

Oil palm 207 8.0 17 4.1

Cottonseed 64 19.9 13 3.1

World production of soybeans and corn, 1980-2011 with projections

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Soybeans

Corn

2009 Crude protein tonnage in U.S. harvested crop production,

top 10 crops

Crop

Production Effective crude

protein content Crude protein

Share of crude

protein available in

top 15 harvested

crops

(million tonnes) (percent) (million tonnes) (percent)

Soybeans 91 34.8 32 33.8

Corn 333 8.3 28 29.4

Alfalfa 71 18.7 12 12.8

Wheat 60 12.8 8 8.2

Corn (silage) 98 7.0 7 7.3

Other hay 70 4.0 3 1.3

Cottonseed 6 19.9 1 1.3

Sorghum 10 12.6 1 0.8

Rice, paddy 10 7.3 0.7 0.6

Barley 5 11.6 0.6 0.5

U.S. production of alfalfa hay, other hay, and corn for silage,

1980-2010

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Corn for silage

Alfalfa Hay

Other Hay

World milk, pork, poultry and beef production, with projections

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U.S. production of fluid milk, 1980-2010 with projections

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USDA

U.S. Milk powder exports to China, Hong Kong, Japan and South Korea

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U.S. hay exports to China, Japan and South Korea

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Alfalfa Hay Exports from California Ports

Year Value Volume

Share of

U.S. total

volume

( $ millions) (1000 metric tons) (percent)

2008 226 1,070 36

2009 328 1,510 40

2010 397 1,800 46

2010 (through Sept.) 277 1,270 47

2011 (through Sept.) 272 1,160 41

Total Dairy Exports from California Ports

Year

Value of

California exports

California share of

U.S. value

(millions) (percent)

2008 1,055 33

2009 530 30

2010 1,319 42

2010 (through Sept.) 986 42

2011 (through Sept.) 1,290 42

Index of trade-weighted exchange rate for California

alfalfa exports

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U.S. indexed real alfalfa prices, 1972-77 and 2006-2011

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Real prices for alfalfa hay, corn and all milk with USDA projections

for corn and milk

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ilk$

pe

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Corn

Alfalfa hay

Milk

U.S. price for all milk, 1980-2010 with projections

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Do

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n FAPRI Winter 2011

USDA Winter 2011

FAPRI August 2011 Baseline Update

November 2011 USDA WASDE (2012 midpoint)

Real Price of California Alfalfa: Data, Fitted Values and Projections

(2005 dollars)

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$ p

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ton PA= a+bPC+dPM+Gyear, R

2= 0.82

data points

Projection with linear trend

Policy affects the market for all commodities

and therefore alfalfa

• Free Trade Agreement with South Korea

– May encourage milk and hay exports and stimulated demand for alfalfa

• Regulatory policy regarding animal agriculture

– Emissions, and animal housing restrictions affect location of production and regional hay markets

• Upcoming Farm Bill

– Grain and oilseed subsidies reduce downside revenue risks and stimulate production of these crops relative to alfalfa

• Ethanol subsidies, trade barriers and mandates keep corn prices high, but may be on their way out.

Global demand growth for farm commodities

• Continued demand growth for protein commodities, including alfalfa, derives primarily from continued increases in population and income which has been underway for decades and centuries

• At high incomes, income growth matters less for demand for food commodities, but protein, especially animal protein, continues to have significant income effects, even at higher incomes

• Demand growth for fruits, vegetables and tree nuts implied competition with hay and other field crops for acreage and water

• Strong demand expansion assumes that incomes of the world’s poor will continue to grow at rapid rates!

Global supply growth for farm commodities

• Supply growth derives mainly from:

– Opening new lands for crop and livestock production

– Additions to availability of irrigation water

– Increased availability or lower prices of inputs such as improved seed, fertilizer, pesticides and equipment

– Improvements in management on farms as weaker farmers leave and better farmers manage larger farms

– Improved handling and reduced losses along the marketing chain

– New and newly adapted and adopted technology and practices

The supply and demand balance for global markets

for farm commodities

• The balance of supply growth and demand growth determine trends in market prices.

• Over the long haul real (inflation adjusted) farm commodity prices have declined from decade to decade. Some current evidence and analysis suggests that these trends have ended and prices will remain high or even increase in coming years.

• But, one must pause before assuming that very long term supply and demand patterns have reversed.

Thank you.

Dan Sumner

www.aic.ucdavis.edu