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Organic Milk Pay, Feed and Retail Price
Update for May 2018

By Ed Maltby, NODPA Executive Director

Total retail sales of organic milk for the first quarter of 2018, 654 million pounds, was one percent lower than sales in 2017, 662 million pounds, but sales of organic whole milk were up 6% on sales for the first quarter in 2017. Federal Milk Market Order 1 in New England again reported an increase in the utilization of types of organic milk by pooled plants. During March 2018, organic whole milk utilization totaled 16.7 million pounds, up from the 16.3 million pounds one year earlier. This continues the trend in consumer demand for retail organic dairy products and the average retail price for organic half gallons has been slowly increasing over the last ten years rather than declining with a surplus in supply. It is reported that store brand sales of organic milk are now number 1 in retail sales with the Horizon brand (owned by Danone North America) is now number two. This is not a healthy trend for producers’ pay price as store brand is a very competitive market and has traditionally been able to purchase supply at low prices so they can use their store brand as a loss leader to encourage consumers to switch to organic products.

There has been much discussion over the last year with a surplus of conventional milk and an excess of skim organic milk about the shortage of available dairy processing. Reports are that the industry is looking at investing in their own plants rather than relying on conventional plants to co-pack organic. Aurora Dairy is now processing milk in gallons for Danone North America as Danone waits for renovation to their own plant in Salt Lake City. Aurora is also on track to build their other plant in Columbia, Missouri to be opened in December 2018 and is reported to be looking to co-pack for other brands as they grow their own supply. Danone North America have invested in the improvement of its own facilities in Salt Lake City, Dallas and Virginia to be able to control their processing and therefore balancing of product. CROPP Cooperative has invested in manufacturing plants and warehousing, breaking with their original business model of not investing in plant and equipment.

The reported supply surplus in skim milk that has devastated producers’ pay price and stopped any new transitions is reflected by tightness in the organic cream market which is making it harder to meet strong demand for organic butter. National food retailers carrying store and non-store brands of organic butter report increased customer demand for both despite increases in price.

These retailers believe that one pound organic butter priced in or near the $5.00 range is generally accepted by regular customers of organic butter. The shortage of organic cream is directly tied to the lack of processing for separated organic cream at conventional plants who co-pack organic retail products. In many cases, the volumes of organic cream do not justify investment in separate butter churns and silos as required under organic regulations. In other situations, the location of those plants do not have significant supply local to their facility or the plants that process the ultra-pasteurized retail product does not have sufficient volumes of cream to justify the expansion into organic products. Aurora investment in organic processing plants will give them a competitive advantage in the market for fluid products and cream, plus the ability to process organic skim milk.

The organic grain market is at last seeing the effect of the great work done by John Bobbe and OFARM in reporting shipments of fraudulent organic grain to the USDA. John has been able to tap into shipping industry reporting on the movement of grain into domestic ports and passes that information onto the USDA NOP. This has seen some ships being turned around while in transit and other shipments being decertified. Animal and Plant Health Inspection Service (APHIS),
Customs and Border Protection (CBP) are part of the ship-specific investigations. APHIS takes the lead at the border with CBP. Both have worked to investigate and block incoming grain shipments. NOP reports that of the organic operations in Ukraine, Kazakhstan, Russia, and Turkey, 96 (13%) have surrendered certification and 30 (4%) have been suspended or revoked by certifiers since 2016. PR Newswire reports that twenty-five thousand metric tons of purportedly organic corn grown in Russia, Moldova, and Kazakhstan currently sits on the M/V MOUNTPARK, a United Kingdom-flagged vessel lingering off the coast of California. U.S. Customs officials have blocked the shipment for offloading on the basis that it violates federal law.

According to official trade statistics from the USDA Foreign Agricultural Service (FAS), in the first half of 2017, the US imported more than 11 million bushels of organic corn; in the second half of the year import volumes dropped significantly, only reaching 4 million bushels. (For comparison, in the last half of 2016, 8.4 million bushels were imported, over double 2017 H2 figures.)
John Bobbe reports that the bushel price and demand for domestic corn and soybeans are starting to increase to a point where they are reaching a break-even level for growers. Mercaris Data Service estimates that U.S. organic corn production for the 2017/18 marketing year reached 43.4 million bushels, up 51 percent over the prior marketing year. Hopefully, this trend will continue with both increased demand and a sustainable pay-price.