Impact of Alfalfa Exports Surge on Dairy and Feed Markets in California

Alfalfa hay exports have surged considerably since 2009, with 95% of shipments being supplied from seven western states. Many of these states are major U.S. dairy and alfalfa hay producers; California is the nation’s largest producer of both commodities. We investigate these alfalfa exports from the year 2000 until present, seeking to determine if the spike in their dynamic evolution has resulted in a structural break, and find significant evidence of this for the year 2009. Just as important, we investigate whether there has been a change in the dynamic long-run relationships between California dairy and alfalfa markets for the periods’ pre- and post-break of alfalfa exports. We identify significant differences among these two periods; specifically, the long-run equilibrium between milk and alfalfa hay prices and its speed of adjustment following a shock to either market. Results have implications for risk management and policy analysis.