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Saudi hay demand to drive US exports: Rabobank

The Dutch bank said that water conservation policies may drive Saudi companies to seek acquisitions, joint ventures and long-term supply contracts to meet demand for high-quality hay.

US hay producers will benefit from increasing export demand and higher pricing of high-quality hay, driven largely by Saudi Arabia, according to Rabobank.

In a research note titled Foraging for Higher Prices, Rabobank said high stockpiles, weather-related quality issues and water conservation efforts by key consumers have pushed up demand and prices for high-quality hay.

The bank highlighted Saudi Arabia, which saw a 62 percent year-on-year increase in hay imports from the US during the first quarter, as a particularly important factor for US hay demand.

The increase in Saudi hay imports has come as a result of water conservation policies that aim to reduce domestic production of forage for animal consumption.

According to a February presentation by Khalid Alaqeel, general manager for dairy farms at Saudi dairy company NADEC, forage crops account for 67 percent of agricultural water consumption in Saudi Arabia. The presentation also says that government policies call for domestically-grown forage to be replaced by imported sources by January 1 2019 and that the effort to comply with this regulation already involves one project to grow forage for export from Sudan.

Pointing to a January 2016 purchase of forage-producing acres in Arizona and Southern California by a Saudi dairy company, Rabobank wrote that the effort to comply with water regulations could lead to other similar deals in the future.

“Saudi companies may look for long-term growing contracts or joint-venture opportunities to secure adequate feed. They could also look to East Coast producers for lower-quality dehydrated forage to supplement their non-milking cow hay.”

One firm already active in the market for US hay ground is farmland REIT Gladstone Land Corporation.

Gladstone made its first foray into the crop in August 2016, when it purchased 7,384 acres of Colorado farmland devoted to alfalfa and native grass hay for $11.4 million. Gladstone added to its hay exposure in January, when it paid $12.1 million in a combination of cash and stock to purchase a 16,595 acre hay farm in Baca County, Colorado.

Gladstone managing director Bill Reiman told Agri Investor that while these properties produce hay for domestic feedlots and international hay demand has a generally limited impact, Gladstone does have tenants that produce hay for international markets. Reiman said that he is not aware of any Saudi companies looking for joint ventures or long-term supply contracts in the US market as suggested in the Rabobank report.

“It could happen, but there’s so much farmland, I doubt that it would be a needle-mover,” he said. “There are places around the world that are running out of water faster than we are, so it stands to reason that they would come here to replace that production.”