Marketing

Marketing, including marketing alfalfa hay, involves being customer oriented. Marketing means listening to buyers and understanding their wants and needs. Customers for alfalfa may be beef cattle producers, cattle feedlots, milk producers, horse raisers, or sheep producers. Each set of customers has different needs. Thus, effective marketing begins before production and involves selecting target markets, planning production practices to produce alfalfa for each target market, and considering the timing of marketing. This section is a summary of marketing and price information developed in several studies during the last decade.

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Alfalfa quality is essentially the feed value of alfalfa. Different animals and feed rations can utilize different levels of feed value or quality attributes in alfalfa. The quality of alfalfa affects the target market for the hay produced and the price received for alfalfa marketed. Quality also affects production costs and practices. Targeting higher-quality alfalfa may reduce the quantity of alfalfa hay produced. 

Dairy producers usually want alfalfa with a high relative feed value, meaning leafy alfalfa harvested in the bud stage. Horse producers want soft, green, leafy alfalfa free of blister beetles. Beef cattle and sheep producers may be more willing to use lower-quality hay.

In response to a survey, dairy producers rated crude protein (CP) as the most important factor when buying hay. The lowest acceptable protein content, on average, was 19.9 percent for high-producing cows and 16.2 percent for dry cows.

The second most important quality measure was total digestible nutrients (TDN). On average, the lowest acceptable level of TDN was 64 percent for high-producing cows and 57 percent for dry cows.

Growers indicate that increasingly, buyers want to know the relative feed value (RFV) of alfalfa for sale. Yet RFV was the third most important objective measure of alfalfa quality, behind CP and TDN. The lowest acceptable RFV content, on average, was 157 for high-producing cows and 135 for dry cows.

Research shows that buyers pay more for higher-quality alfalfa. Table 8-1 illustrates how much HAYMARKET prices changed in 1992-93 with a one-unit change for each quality measure. Note each relationship is independent of the others and not additive. The price premium for a one percent increase in crude protein (CP) averaged $1.34 per ton for the production years 1983-87. The premium for an individual year ranged from a low of $0.33 per ton (not statistically significant) to a high of $3.25 per ton. These show a clear positive relationship between alfalfa quality and prices paid or received, even with the variation caused by other alfalfa attributes.

Weeds Affect Hay Value

Dairy producers are also interested in knowing the amount of broadleaf and grassy weeds in alfalfa. Buyers rated the amount of weeds among the most important types of information about the alfalfa they purchase. Alfalfa hay with less than five percent weeds was chosen as the basis for comparison. Buyers significantly discounted alfalfa hay with large amounts of weeds. Hay sold with larger amounts of weeds was discounted $8.17 to $25.11 per ton. Clearly, buyers are looking for alfalfa hay which is nearly weed-free, and growers have a price incentive to keep their alfalfa free of weeds.

In addition, growers have a cost incentive related to controlling weeds and thereby prolonging stand life. Proper weed control (See "Weed Management in Alfalfa" in Chapter 2) significantly affects alfalfa yields as well as quality. In addition, as noted in Chapter 11, ("Economics of Producing Alfalfa"), stand life is extremely important to profitability of the alfalfa enterprise. As stands begin to thin, proper wee control becomes a key factor in extending profitable returns.

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The harvesting package affects the cost of transporting and handling alfalfa, thus helping to identify your target market. Chapter 6 (Hay Handling and Storage,) discusses the most common harvesting packages. Many dairy producers want alfalfa in large square or small rectangular bales but not round bales. Horse owners prefer small rectangular bales to large square or round bales. Beef cattle and sheep producers may prefer round bales or small rectangular bales.

For research on the price differences of bale sizes per types, small rectangular bales were used as the basis for comparison. Large square bales were discounted $7.51-$10.17 per ton compared with alfalfa hay sold in small rectangular bales. Round bales were discounted $16.43-$26.83 per ton compared with small rectangular bales. The discount for round bales was not surprising but the discount for large square bales was unexpected. Some growers harvest alfalfa in round bales when they perceive that alfalfa quality does not merit using more expensive packages. If buyers are aware of this practice, it makes it more difficult for growers with high-quality alfalfa in round bales to market their alfalfa at prices commensurate with quality.

As noted above, the market values bale sizes differently. As market conditions change, the value changes. Also, the cost of producing alfalfa in various harvesting packages differs. Harvesting costs are typically less for round bales, but the alfalfa market also discounts prices paid for them. Large square bales are typically the most costly to produce. Some buyers may pay a premium for large square bales, but some may not. Small rectangular bales lie in between the other two types in terms of harvesting costs and are typically not discounted by buyers.

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Timing of alfalfa sales also affects growers’ marketing plans. Alfalfa, like most agricultural commodities, exhibits a seasonal price pattern due to seasonal supply or demand, or a combination of both. Seasonal price index values indicate how a given month’s price differs from the annual average price over a specified period of years (often 10 years).

From the mid-1980's to the mid-1990's, alfalfa prices on average in Oklahoma have been lowest shortly after the production marketing year begins (reaching a low in the May-June period). Prices then increase gradually until peaking in January before declining in February and March, then dropping sharply until the new crop harvest begins again. Prices below the annual average price occur during the primary alfalfa harvesting months. The January price was 6.2 percent above the annual average price. Similarly, in June, the prices over the past ten years averaged 7.7 percent below the annual average price.

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A high price is not the sole goal in marketing, though price is certainly important. Accepting a lower price for alfalfa hay sold from the field during the lower-price months may return more than handling and storing alfalfa while waiting for a higher price during later months. Hay that is stored shrinks (loses moisture) as it cures. See Chapter 6 ("Hay Handling and Storage") for more information.

On average, about 10 percent fewer pounds of the same hay will be sold from storage as will be sold from the field at harvest. One ton from the field at $90 per ton is equivalent to about $100 per ton of the same hay after a 10 percent shrink. In addition, storing hay requires storage facilities, handling, and having your money tied up in inventory (unsold hay) for the storage period. However, if the annual average price is $100 per ton, the average price in June will be $92.30 (based on the latest 10-year price indexes) compared to $106.20 in January, a difference of $13.90/ton. In some years, the within-year, peak-to-valley difference is considerably more, though it can also be less. Therefore, in some cases, storing alfalfa for a higher price is worth the added cost. One strategy alfalfa growers might consider is to market lower-quality alfalfa hay from the field and store higher-quality alfalfa to market later in the year.

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Estimated average daily alfalfa hay consumption (pounds per head per day) over a 12 month period by species according to animal scientists was: dairy cattle, 12.3; beef cattle, 3.6; feedlot cattle, 1.6; horses, 6.2; and sheep, 1.6. These amounts were used to estimate alfalfa consumption by state.

The difference between alfalfa production and estimated consumption in each state was used as an indicator of alfalfa surplus or deficit in each respective state. Major deficit states are most consistently in the southern region of the U.S. Texas is by far the largest deficit state. Alfalfa surplus states tend to be in the northern and western states.

Several least-cost transportation models were estimated. In all cases, the model found a least-cost movement of alfalfa from production to consumption regions given the assumed set of transportation costs. Truck size and transportation rates vary from state to state. Agronomists were asked to identify common load sizes and transportation rates for alfalfa hay. For load size, a 44,000-pound size load was chosen. Rates chosen were $1.00 per mile for higher-quality alfalfa and $1.65 per mile for lower-quality alfalfa.

Results for the 1995 base model suggest all higher-quality alfalfa produced in Oklahoma should be shipped to Texas and most lower-quality alfalfa should be fed in Oklahoma.

Results for an assumed 20 percent increase in Oklahoma alfalfa production are interesting in that total exports from Oklahoma to other states increase, but the composition of exports changes. In the base model, Oklahoma shipped 433,000 tons of high-quality alfalfa and 95,000 tons of lower-quality alfalfa to Texas for dairy demand. About a million tons of lower-quality alfalfa remain in Oklahoma to satisfy the alfalfa demand for nondairy livestock.

With an assumed 20 percent increase in production, Oklahoma will ship significantly more alfalfa to Texas, both for dairy and nondairy demand. The model indicates that 572,000 tons of high-quality alfalfa is exported to Texas to satisfy dairy demands in that state. Another 823,000 tons of lower-quality alfalfa is shipped to Texas to satisfy nondairy demand, while 338,000 tons remain in Oklahoma to satisfy nondairy demand.

Therefore, a 20 percent increase in Oklahoma’s alfalfa production likely would result in more alfalfa, both higher and lower-quality, being exported to Texas than in the 1995 base model. This suggests that increases in alfalfa production would likely increase alfalfa exports to Texas, but not all at dairy-quality alfalfa prices.

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Alfalfa Production Guide for the Southern Great Plains, 2001
Comments and Questions:
E-mail: John Caddel

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