Marketing and pricing alfalfa hay

Clement E. Ward, Professor and Extension Economist,
Oklahoma State University

Marketing involves being customer-oriented. It also means listening to buyers and understanding their wants and needs. Effective marketing of alfalfa begins before production and involves selecting target markets, planning production practices to produce alfalfa for each target market and considering the timing of marketing efforts.

Importance of quality
Quality of alfalfa is important for several reasons. Quality affects the target market for alfalfa produced and the price received for alfalfa marketed. Quality also affects production costs and practices. Producing higher-quality alfalfa will reduce the total quantity of alfalfa produced and increase the cost of production.

The target market for alfalfa depends on the quality of hay produced. Dairy producers usually want alfalfa with a high feed value that can contribute to milk production. Dairy-quality alfalfa typically means leafy alfalfa harvested in the bud stage with few weeds and grasses. Horse raisers want soft, green, leafy alfalfa for good horse nutrition. Plus, alfalfa hay must be free of blister beetles. Beef cattle and sheep producers may be more willing to use lower-quality hay because ruminant animals need substantial fiber roughage for proper rumen activity.

Quality and price relationship
The quality of alfalfa produced affects the price buyers will pay for alfalfa. The price and quality relationship is important both for growers and buyers. Alfalfa growers must know the quality of their alfalfa before accurately estimating its value and realistically formulating an asking price. Dairy producers and other alfalfa buyers must know the quality of alfalfa in order to assess its value as a production input and to accurately develop a realistic bid price.

Objective measures of quality refer to those attributes for which there is some type of laboratory test. In contrast, subjective evaluation of alfalfa quality includes such things as visual appearance, feel and smell. All are intended to estimate hay quality as a feed ingredient.

For many years, the only available objective measure was crude protein (CP). Improved laboratory analyses enabled estimating fiber and total digestible nutrient (TDN) content of forages. Non-digestible nutrients are less valuable as a feed than digestible nutrients, so TDN is a relatively good measure of feed value for forages. Laboratory methods also estimate neutral detergent fiber (NDF), acid detergent fiber (ADF) and other attributes. NDF relates to the intake potential of the forage and measures fiber in the secondary plant cell wall. ADF measures the amount of total indigestible fiber and thus relates to digestibility. When NDF and ADF are combined in a series of formulae, they allow computing the relative feed value (RFV) of forages.

Dairy producers were asked to indicate the importance of five objective quality measures when purchasing alfalfa hay; i.e., crude protein (CP), total digestible nutrients (TDN), neutral detergent fiber (NDF), acid detergent fiber (ADF) and relative feed value (RFV). Dairy producers responding to the survey rated crude protein (CP) highest. The lowest acceptable protein content, on average, was 19.9 percent for high-producing cows and 16.2 percent for dry cows. For high-producing cows, there was a tendency for minimum acceptable protein to increase as buyer size increased. Survey results suggest what minimum alfalfa quality hay growers may use as a target level.

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.

Alfalfa growers indicate that buyers often want to know the relative feed value (RFV) of alfalfa for sale. Yet, in this study, 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. The minimum level of RFV increased along with buyer size for high-producing cows and decreased along with size of buyers for dry cows.

For the two components of RFV, growers indicated the lowest acceptable level of ADF for high-producing cows was 29.7 percent; and for dry cows, 32.3 percent. Higher values for ADF indicate more total fiber. For neutral detergent fiber (NDF), the lowest acceptable levels were 38.9 percent for high-producing cows and 45.5 percent for dry cows. Higher values for NDF indicate more indigestible fiber.

Research shows that buyers pay more for higher-quality alfalfa. However, data are typically not available to measure the price-quality relationship. Alfalfa quality attributes are interrelated. While buyers can pay more for higher-quality alfalfa, whether or not they will pay more depends primarily on current supply-demand conditions for alfalfa and alternative feedstuffs.

Weeds and grasses
Dairy producers are also interested in knowing the amount of broadleaf weeds and grasses (referred to as weeds) in alfalfa. Buyers rated the amount of weeds among the most important types of information about the alfalfa they purchase. The amount of weeds also significantly affected alfalfa prices. Buyers significantly discounted alfalfa hay with larger amounts of weeds. Growers have a price incentive to keep their alfalfa free of weeds. In addition, they have a cost incentive related to controlling weeds and thereby prolonging stand life.

Bale type and size
The harvesting package affects the cost of transporting and handling alfalfa. Thus, the bale type and size helps alfalfa growers identify their target market. Many dairy producers want alfalfa in large square or small rectangular bales but not round bales. Horse producers prefer small rectangular bales and not large square bales or round bales. Beef cattle and sheep producers prefer round bales or small rectangular bales.

Some growers harvest alfalfa in round bales when they perceive that alfalfa quality does not merit using more expensive bale types (such as large square bales). If buyers are aware of that practice, it becomes more difficult for the growers of high- quality alfalfa harvested in round bales to market their alfalfa at prices commensurate with its quality.

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

Price indexes provide some insight into longer-term alfalfa hay price patterns. However, any single year’s price pattern may deviate from the seasonal average and the typical pattern. Still, it is useful to know what the normal seasonal price pattern is when making marketing decisions.

Storage and out-of-field marketing
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 net higher returns than handling and storing alfalfa while waiting for a higher price during the higher-price months. Stored hay shrinks (loses moisture) as it cures. Therefore, about 10 percent fewer pounds of the same hay will be sold from storage as will be sold from the field at harvest.

In addition, storing hay requires storage facilities, handling, and having your money tied up in inventory (unsold hay) for the storage period. Therefore, in some years, storing alfalfa for a higher price is worth the added cost; but in other years, it is not. One strategy alfalfa growers might consider is marketing lower-quality alfalfa hay from the field and storing higher-quality alfalfa to market later in the marketing year.

Summary and conclusions
Marketing planning is interrelated with production planning. Marketing means understanding buyers’ needs and producing to meet those needs. Buyers typically pay premium prices for the alfalfa attributes they value: high feed value, few weeds and grasses and their preferred harvesting package. Objectively measuring alfalfa quality (feed value) is important and will likely return more to alfalfa growers than the cost of the laboratory tests. HG

References omitted but are available upon request at editor@progressivedairy.com

—Excerpts from Oklahoma State University website