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The previous articles in this series focussed on aspects relating to grading, quality, production areas, and production methods. This article examines producer price trends and the factors influencing lucerne hay prices. Prices for South African lucerne hay from 2017 to the end of 2023 are illustrated in Figure 1 for the various quality grades produced. Several noteworthy factors affecting these prices can be observed and are discussed.
Lucerne hay is classified into five quality categories: Supreme, Prime, Grade 1, Grade 2, and Grade 3. Due to factors influencing hay production and quality, not all grades are always available in the market (Figure 1). At the start of the 2021 production season, an additional category, namely Supreme grade, was introduced to distinguish very high-quality lucerne hay from other grades.
Figure 1: Lucerne hay prices from 2017 to 2023. (Source: own calculations)
Producer prices
Seasonality in lucerne hay production has been consistently observed from 2017 through to the beginning of the 2023 production season. Supply and demand fluctuations play a significant role in determining producer prices. The production season runs from August/September to March/April, with the highest-quality yields generally occurring at the beginning and end of the season when climate conditions are more favourable.
Between May 2021 and February 2022, the typical seasonal price fluctuations in the South African lucerne hay market decreased, with prices instead showing a steady upward trend into early 2022. Several factors contributed to this period of price stability. Abnormal weather conditions, such as excessive rainfall, increased rainfall frequency, and fluctuations in day and night temperatures, were experienced across hay-producing regions during this period.
Another factor contributing to producer prices moving sideways was the opening of the Chinese export market to South African lucerne hay during the 2019/20 production season. This development increased international demand for South African lucerne hay, which was already being exported to neighbouring countries and markets in the Middle East (Saudi Arabia and the United Arab Emirates [UAE]).
From February 2022, producer prices for lucerne hay increased sharply, primarily driven by stronger international demand, particularly from China. At the same time, supply was constrained due to earlier adverse weather conditions. In addition, many lucerne hay producers had shifted away from lucerne hay production due to its lower profitability during that time. The combination of rising demand and reduced supply resulted in the pronounced increase in producer prices.
Lucerne hay prices began declining at the start of 2023 as improved haymaking conditions increased supply. The high producer prices also encouraged more producers to enter the lucerne hay market, with some shifting production away from other cash crops such as maize and wheat. Additional factors included reduced demand from China, due to a slowdown in dairy product demand following the Covid-19 pandemic, as well as supplies being stuck in Chinese ports due to congested ports globally (Hay and Forage Grower, 2021).
Producer prices recovered and peaked again in June 2023, largely due to renewed demand in the international market, particularly from China. From June 2023 onwards, producer prices steadily declined to current levels, primarily due to a surplus supply in the market from previous seasons. (The abundance of lucerne hay carried over from earlier periods and increased production resulting from elevated producer prices in the preceding production seasons have contributed to the current downward price trend.)
Price trends also show that when lucerne hay supply is abundant, price differences between quality grades are more noticeable compared to periods of limited supply. Producers can reduce price risk by storing lucerne hay and selling it later when prices are higher. However, this practice is not common, as many producers lack the storage facilities or financial capacity to hold hay for extended periods. Bulk storage and delayed sales are primarily undertaken by cooperatives and merchants.
Export and international markets
South African lucerne hay production, export volumes, and export values from 2018 and 2022 are shown in Figure 2. The volume and quality of lucerne hay produced are influenced by weather conditions during the production season, which determine the volume of hay available for export. No data is currently available on the export volumes of different lucerne hay grades. South African lucerne hay production has remained stable over the years, although it is highly dependent on favourable weather conditions for haymaking during the production season (NLT 2022).
Figure 2: South African graded lucerne hay, exports, and value of lucerne hay exports (USD), 2024. (Source: own calculations and UN Comtrade Database)
From 2018 onwards, increases in exports are observed due to growing international demand for South African lucerne hay. This trend was primarily stimulated by the opening of the Chinese market at the end of 2018/19 (NAMC 2018, 2019; UN Comtrade Database 2024). The value of lucerne hay exports is reported in United States dollars (USD) and represents the combined value of all grades exported. These values, sourced from the UN Comtrade Database, are reported on a cost, insurance, and freight (CIF) basis.
South African lucerne hay exports are predominantly directed to neighbouring countries and the Middle East. For several years, the Kingdom of Saudi Arabia and the UAE were the leading importers of South African lucerne hay (Figure 3). On average, South Africa exports between 140 000 and 260 000 tonnes of lucerne hay annually. However, a decline in total exports was observed by the end of 2023, mainly due to unfavourable weather conditions during the haymaking season, which reduced the availability of high-quality hay (UN Comtrade Database 2024; NLT 2023).
Figure 3: South African lucerne hay exports (tonnes) from 2018 to 2023 (HS1214) (2024).
Exports of lucerne hay to China began in 2019 with 800 tonnes and increased steadily to more than 68 000 tonnes by 2022, largely driven by increased demand following trade agreements between China and South Africa concluded in 2018 (NAMC 2018; UN Comtrade Database 2024). Exports to Middle Eastern countries remained relatively stable from 2018 onwards, although declines were observed towards the end of 2023. One possible explanation for this decline is the growing demand for lucerne hay in China, which aligns with growth trends in the Chinese dairy industry (USDA 2021).
In 2018, a trade agreement between China and South Africa opened a new export market for South African lucerne hay. This agreement promotes trade between participating countries and includes lucerne hay as one of several agricultural commodities traded with China (NAMC 2018). The opening of the Chinese market created new opportunities for South African producers by expanding access to global markets and supporting the sustainable growth of the domestic lucerne hay industry.
Two factors contributed to the establishment of the South Africa-China agreement. First, the trade wars between the United States (US) and China involved the imposition of tariffs on numerous products (NAMC 2019). Second, China’s growing demand for imported forage played a role. In 2021, China imported more than 1,16 million tonnes of lucerne hay, reflecting strong and continuing demand. This demand is primarily driven by the expansion of China’s dairy industry (USDA 2021).
The US remains the largest producer of lucerne hay globally, followed by Australia and Spain. South Africa mainly exports lucerne hay to the Middle East and China (Figure 4). Within these markets, South Africa competes primarily with exporters from the United States and Spain.
Figure 4: Lucerne hay exporting countries from 2018 to 2023 (HS1214).
Figure 5: Lucerne hay importing countries from 2018 to 2023 (HS1214) (2024).
As is illustrated in Figure 5, the Middle East and Asia represent the largest users of lucerne hay worldwide. Japan is the world’s largest importer of lucerne hay, importing more than two million tonnes annually. Data for Saudi Arabia, however, is absent from the 2023 dataset. – Dr Hermias van Niekerk, Department of Agricultural Economics, University of the Free State
The last instalment in this series will focus on the profitability of lucerne hay production in South Africa. For more information or references, send an email to vNiekerkHN@ufs.ac.za or visit the NLT website at www.lusern.org
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