Dynamic Relationships and Price Discovery of Western Alfalfa Markets

Alfalfa hay exports have substantially increased since 2007 with 99% being shipped from western ports (Putnam et al., 2013), and likely more than 95% of it originating from seven western states (Putnam et al., 2015). This paper determines the dynamic price relationships among alfalfa markets in those western states. Of particular interest is to identify the price discovery process between the spatially separated alfalfa hay markets of Arizona, California, Idaho, Nevada, Oregon, Utah and Washington. Alfalfa hay is the nation’s fourth largest crop in terms of total acreage (USDA NASS, 2013). In each of these seven western states, alfalfa is among the top three most important crops in terms of acreage. For many years, the dairy industry in these states has been the dominant market for alfalfa hay. The dairy industry continues to be a major market with alfalfa being the largest feed component for them (more than 50%), and these western states produce approximately 41% of all US production of milk in 2012 (U.S. Dairy statistics). However, the recent surge in alfalfa hay exports is resulting in a new major market for alfalfa hay and may be changing the price discovery process in these markets. The objective of this study is to examine and elucidate the center of price discovery for alfalfa among the seven mentioned western states, by identifying the causal and dynamic price relationships. The concentration and scale of dairies varies considerably by state, and obviously there are spatial differences relating to distance to the ports. Understanding the evolving nature of alfalfa hay prices in these spatially separated markets should have important risk management and policy implications.