Alfalfa Seed Marketing in Canada - October 2004

Introduction

Alfalfa is used widely throughout the world as a source of high protein roughage for livestock in pasture and hay mixes. In Canada, alfalfa is regarded as the "Queen" of forages, and is a major component of Canada's processed forage industry (dehy alfalfa sector). It is used extensively as a high quality feed in the dairy industry. As a result, alfalfa seed production in Canada has grown to such an extent that Canadian production has made Canada a major exporter of alfalfa seed. Seed is produced almost entirely in Alberta, Saskatchewan and Manitoba, with exports originating from these same three provinces. Large quantities of alfalfa seed are also imported and are primarily destined for Ontario and Quebec, with the traditional supplier being the United States.

Canadian Industry

Deferred delivery contracts are another contracting option for producers. These are similar to production contracts in some aspects but differ in that the amounts specified in the contract for delivery is a legal obligation. Failure to deliver could result in legal action by the seed company.

The alfalfa seed industry in Canada underwent considerable change during the 1990's. The most notable change was an increase in acreage, for both pedigreed varieties and common seed. An increased interest in proprietary (private alfalfa varieties) has also taken place. Alfalfa seed acre expansion has primarily occurred in Manitoba and Saskatchewan. The trend to greater use of private alfalfa seed varieties by both farmers and consumers is expected to continue in the foreseeable future.


Alfalfa hay bales on the move

World Production

North America is the world's largest alfalfa seed producing region, with Canada and the United States together producing over 50 million kilograms of alfalfa seed in a normal year. In the United States, production occurs primarily in California (non-dormant varieties), Idaho, Washington and Nevada. Other important alfalfa seed growing regions of the world include France, Italy and Argentina.


Marketing Alternatives

Farmers can market alfalfa seed in several ways. The simplest method is selling into the cash market through a processor or seed company. This is convenient if large quantities of seed are involved. Seed companies offer to purchase seed in the marketplace at a "wholesale" price, based on their knowledge of what the product can be sold for. Typically, a processor's quoted price is "cents/lb after cleaning and bagging, for a particular grade". Prices offered vary, depending on supply/demand conditions (how these conditions are perceived by the firm.) For growers, the cash market has both advantages and disadvantages. Daily price offerings mean that their production can be turned into cash on short notice. With several companies making offers, the best daily price can be obtained after making a few phone calls. The grower assumes all the price risk but maintains maximum flexibility in terms of when to sell and how much seed to sell. One negative aspect of marketing seed in this manner is that the farmer bears a tremendous amount of price risk. Alfalfa seed markets will fluctuate with basic supply and demand market principles. The ability of the farm operation to withstand this level of risk will vary between farms. Many growers who market this way are prepared to store their seed when prices are unacceptably low and wait for prices to improve.

It has become increasingly common for farmers to contract their alfalfa seed production. Most contracts available are production types, whereby the farmer agrees to grow and sell all, or some portion of the alfalfa seed produced from a specified area of land. These contracts may be priced or un-priced. Priced contracts may be written at a fixed price, or written as an initial payment with a possible final payment in the future, (after the seed has been sold by the company). With un-priced contracts, the farmer agrees to deliver the stated quantity of alfalfa seed, with the price received determined at the time of delivery. For example, the price may be the cash bid on the day of delivery, or could be based on an average price for a particular public variety over some predetermined period close to when the seed is delivered. Production contracts may have an "Act of God" clause. In the event of a crop failure, the farmer's obligation to deliver seed is removed. Priced contracts are common for farmers growing proprietary varieties from the United States. These contracts will often specify a price per pound for one year, with prices renegotiated in subsequent years.


Leafcutter Bee Shelter for Alberta Seed Pollination

Deferred delivery contracts are another contracting option for producers. These are similar to production contracts in some aspects but differ in that the amounts specified in the contract for delivery is a legal obligation. Failure to deliver could result in legal action by the seed company.

Another marketing option is for farmers to use a broker to sell their alfalfa seed. In Alberta, there are a number of seed companies that will perform brokerage functions for farmers. In most cases, alfalfa seed must first be cleaned, bagged and tested (germination and purity).

Another option for growers is to directly retail their own seed. Seed is cleaned, bagged and tests conducted at the growers expense. Bagged seed is then sold "farm-gate" or though a retailer. Generally, these private sales involve relatively small volumes of public certified or common seed. Proprietary varieties are not sold in this way. Unlike other forage grass and legume varieties, there is generally good demand annually for alfalfa seed.

Summary

Growers can market their alfalfa seed in a variety of ways:

1. Sell into the cash market to a seed company or processor
2. Contract their expected production with a seed company
3. Set a production contract for seed quantity only
4. Have a contracted (set) price for the production of the seed. Contracting can reduce some or all of the price risk. In most cases it will take away the potential for gains if markets strengthen, but allows for solid long term farm planning
5. Contract a set amount of expected production/stored production for a future delivery date at a set price
6. Sell their own seed
7. Sell their own seed through a broker.