What Factors Affect the Global Alfalfa Market and Alfalfa Prices?
In the United States, dairy and beef industries have the most influence over alfalfa and hay prices. Every year, the U.S. exports between 2-3% of total U.S. alfalfa and hay production. Similarly, the U.S. exports about 10% of the alfalfa produced in the western states. Thus, since domestic industries consume the bulk of U.S. production, exporters have very little influence on alfalfa prices.
Currencies, commodities, stock markets, and the maritime industry also influence the global alfalfa market and alfalfa prices. Details of these factors follow.
How Do Currency Fluctuations Affect Alfalfa Prices?
Currency fluctuations directly (and immediately) impact alfalfa prices. In general, buyers become bullish and buy more alfalfa when the dollar is weak. Conversely, buyers become bearish and buy less alfalfa when the dollar is strong. In the mind of the buyer, the weak dollar increases the value regardless of alfalfa prices. Regardless of dollar value, cows still need to eat, and currency value rarely slows exports.
How do Commodities Affect the Alfalfa Prices?
First and foremost, alfalfa is not a commodity! Unlike #2 yellow corn (or a barrel of oil), alfalfa is a value-added agricultural product. Whereas corn requires a simple load-and-ship process, alfalfa requires grading, processing, and packaging with strict attention to quality control before being exported. Furthermore, alfalfa is not traded as a commodity. There is no alfalfa futures market. In fact, The Gombos Company purchases alfalfa directly from farmers, and the free market is the basis of alfalfa prices.
Even though alfalfa is not a commodity, commodities do sway the price of alfalfa. For example, when corn prices are down and alfalfa prices are high, dairy managers feed more corn than alfalfa. Conversely, when alfalfa is abundant and prices are cheap, dairies feed more alfalfa than corn.
How Do Stock Markets Affect the Global Alfalfa Market?
Generally speaking, stock markets echo a country’s economic health. Economic growth and rising stock markets reflect consumer confidence and business profitability. When consumers don’t spend money and businesses lose profits, the economy slows and stock markets decline.
To a degree, Gross Domestic Product (GDP) drives the stock market. Subtracting imports from the total dollar value of all goods and services produced in a country determines GDP. Imports which exceed exports create a trade deficit. Prolonged trade deficits negatively impact stock markets. Ultimately, stock markets influence the global alfalfa market.
How Does the Maritime Industry Affect the Global Alfalfa Market?
Also known as steamship lines, the maritime industry affects the global alfalfa market. In order to conduct international trade, U.S. exporters rely on steamship lines for ocean freight to other countries. There are about 20 publicly traded or privately held steamship lines; however, none of them are U.S.-based. For the purpose of sharing capacity and costs, nearly all steamship lines are in alliances with their competitors. Carrier capacity, energy, labor, and infrastructure (roads and ports) all impact the global alfalfa market and alfalfa prices.