Alfalfa is an important crop in the United States, especially in the western United States. Over the past twenty years, alfalfa has occupied 20 percent of cropland in the western United States and is always ranking as the top 5 largest commodities in the West (Cann 2014). Arizona is a southwest state with a large amount of cropland occupied by alfalfa hay. Meanwhile, the livestock industry in Arizona requires high quality alfalfa as one of the main inputs for milk and beef cows. Preharvest alfalfa requires significant amounts of water for growth and its production could be affected by water shortages in the Southwest. In spite of this, there are relatively few studies having been done on Arizona’s alfalfa market (Nielson et al.1975, Samani and Pessarakli 1986, Martin et al. 2006).
Surface water use for agriculture in Arizona is mainly from Colorado River and the Gila River system. There are predictions that Colorado River is going to have a water shortage in the next few years (Berardy & Chester 2017). Central Arizona holds “junior” priority water rights to Colorado River supplied by the CAP (Central Arizona Project). In this case, farms in Central Arizona may have to revert to pumping groundwater, plant other crops that require less water, or some combination of both. Central Arizona dairies may have to “import” alfalfa from other parts of Arizona or from other states.
Alfalfa in Arizona is a free market crop with no barriers on entry and exit. There is no production controls and no institutional prices in alfalfa market. Thus, the alfalfa price is determined by supply and demand. This paper aims to review previous studies of the alfalfa market 7 and use econometric models to assess how production shocks might affect state alfalfa prices.