Date of Award:

5-2014

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Economics and Finance

Advisor/Chair:

Donald Snyder

Abstract

Alfalfa is the fourth largest commodity grown in the Western U.S., representing 20% of the crop acreage over the past twenty years. In the last five years alfalfa hay price has doubled from what it was previously, indicating a possible structural change in the market. This research project was completed to test for this structural change using econometric analysis of the important demand components of alfalfa price. In addition to this, simulations of an average Utah dairy were completed to examine which ratio of forage crops provided the highest economic return to the operation. To analyze the structural change of the alfalfa hay market milk price, feeder price, commodity price, dairy inventory, alfalfa ending stocks, alfalfa exports, a structural shift dummy variable, and two proxy variables representing costs and quality were regressed, explaining 76% of the variation in alfalfa hay price. A Chow-test of the divided data set provided evidence that a structural change occurred in the alfalfa hay market circa 1994. Percent changes in the independent variables and corresponding changes in alfalfa price were calculated, showing that milk price has the largest influence over alfalfa price. An in-sample forecast showed that the regression was able to predict alfalfa hay price to within an average of $14 of the actual price over the time frame included in the analysis. The simulation of an average Utah dairy was done at three levels of production: 18,300 lbs, 22,500 lbs., and 26,700 lbs. production. Within each level of production the alfalfa to corn silage ratio was varied to represent 25/75, 50/50, and 75/25%, respectively, of the dry matter forage requirement. It was found that return to management was the greatest when alfalfa was 25% of the ration and at the lowest when alfalfa was 75% of the ration at all levels of production.