Each week United States Department of Agriculture, Agricultural Marketing Service (USDA AMS) publishes the Washington-Oregon (Columbia Basin) direct hay report. The report details reported hay sales with both volume and sales price. The report also includes special notes and commentary.
The special note for the week ending March 31 read, "No reported sales last week so no report was issued the week of March 20, 2023." This is fair and reasonable commentary. It is no secret that sales are terrible.
The report goes on to say, "Compared to last Friday, not enough of any one class of hay reported for accurate market trends. Trade is near standstill. Some interest was noted for export hay to the UAE but no sales yet. Demand remains light. Trade sources indicate that Korea has cancelled basically all of their hay exports from US and is buying from Australia due to the $ conversion rate there versus here. So there are now TONS and TONS of hay that was previously sold on contract that is now no longer spoken for."
This commentary is mostly true. The dollar (USD) has strengthened. Korean hay buyers pay for hay in USD. Before a Korean buyer can purchase hay, they must change won for dollars. As the dollar strengthens, it takes more won to buy a dollar. In November, the exchange rate approached ₩1,450 won per dollar. This made U.S. hay more expensive for Korean buyers. Demand for U.S. hay decreased.
The won weakened through January. The won reached ₩1,250 per dollar before weakening again to ₩1,300 per dollar in March. The strong dollar has reduced demand for hay. Exchange rates have been adversely affecting demand for hay for nearly a year. The hay report suggests a sudden shift and a drastic change to market dynamics based on exchange rates; this is not the case.
Hay Exports to South Korea
Source: USDA Census Bureau, Federal Reserve Economic Database, Compiled by Hay Kings
The market is more complex than the hay report suggests. Farmers grow and harvest hay. Exporting companies purchase hay. There are many points of negotiation between farmers and exporting companies including payment terms, shipping, logistics, tarping and several other elements. The importance of relationships in this negotiation cannot be underscored enough.
Once the exporter has purchased the hay, the product is compressed and packaged for shipping. A similar relationship exists between the exporter (or shipper) and, in this case, the Korean buyer. A request is made by the buyer for a particular grade and terms and pricing are negotiated. Sales are not made between the U.S. government and the Republic of Korea. Sales are made between U.S. shippers and Korean importers. "Korea" doesn't cancel contracts. While U.S. exports are dramatically slower, the notion that all sales would end is nonsensical. Even during the worst of the COVID lockdowns and uncertainty, hay continued to flow.
The most troubling part of the report is the implication that contracts are being cancelled. While that may be true in isolated cases, the better way to describe the situation is the U.S. shippers are just not getting orders.
Talk of cancelling contracts is harmful and disruptive to markets. There are people with reputations and integrity trying to make a living in the hay industry. To imply that there are widescale contract cancellations is insulting at best.
"So there are now TONS and TONS of hay that was previously sold on contract that is now no longer spoken for." This analysis misses the level of sophistication I have come to expect from the USDA. Describing tons and tons of hay that would ultimately fall back to producers is ambiguous and disruptive.
Hay Kings is calling on the USDA FAS to issue a report discussing factors affecting demand for U.S. hay in the largest export destinations: China, Japan, South Korea, Taiwan, Saudi Arabia, and the UAE. Additionally, the USDA AMS should recognize that exchange rates are always important to agricultural exports, market structures are complex, and the hay industry is based on long-standing interpersonal relationships.
April 13 Update: Korean sales confirmed.