Alfalfa growers cash in as South Africa drought cuts grazing

Alfalfa growers in South Africa are among the winners from the nation’s worst drought on record as animal- feed shortages and surging exports fuel prices for the hay.

Prices for alfalfa, also known as lucerne, have surged by a third in a year, said Bester Feed & Grain (Pty) Ltd., a Stellenbosch, South Africa-based agricultural trading company. Higher demand risks depleting stocks before the onset of the Southern Hemisphere’s winter, when local farmers need to supplement grazing, said Johan Strydom, a regional coordinator for the Milk Producers’ Organisation lobby group.

The price gains come even as farmers increase plantings this season by as much as 30 percent, Pieter Spies, the managing director of agribusiness at GWK Ltd., which markets, stores and trades agricultural products, said in an interview in Douglas in the Northern Cape province. The country cultivates an estimated 50,000 hectares (123,500 acres) of alfalfa, GWK said, and produces 1.2 million metric tons annually, according to the National Lucerne Trust.

“Prices are at record levels,” Bester Feed said in an e- mailed response to questions. “We’re moving to a point where lucerne simply won’t be available regardless of what you pay.”

Food Inflation

The worst drought since records started in 1904 has decimated livestock farmers’ fields and fueled prices for other feed such as yellow corn, which has rallied 70 percent since the start of last year. This has sparked a selloff in cattle, risking meat and milk shortages, while contributing to food inflation that’s forecast to exceed 10 percent by the middle of 2016, from 4.8 percent in November.

Prices for alfalfa are currently averaging 2,500 rand ($148) a metric ton, 32 percent more than last season, Bester Feed said. They may increase to as much as 3,800 rand when transport costs are included, the MPO’s Strydom, who is also a milk farmer near Lichtenburg in the North West province, said by phone. The hay isn’t traded on a commodities exchange.

“Sometimes we park our trucks for two or three days at the depot in the hope to get some stock,” Strydom said. “It gets sold the moment it gets there.”

An alfalfa shortage in the United Arab Emirates, where farmers’ access to underground water sources are restricted, has boosted demand for South Africa-grown hay, Bester Feed said. Prices have increased by as much as 60 percent since large-scale exports to the U.A.E. commenced in 2012, Spies said.

“The overseas market has become a factor,” Spies said. “It has lifted the price of lucerne to a global level, hence it had quite an inflationary impact on especially milk farmers.”

Some traders are currently in talks with Chinese buyers as a potential new market, Derick Engelbrecht, manager of the National Lucerne Trust, said by phone.

Alfalfa demand is only expected to subside should rainfall patterns return to normal at the end of winter in September, said Strydom.

“There is no fodder left on the farms, and that places a lot of pressure on lucerne,” he said. “We’ll be facing a crisis for the next six to seven months.”’

 – Bloomberg