July 2014 Feed, Pay
and Retail Price Update
By Ed Maltby, NODPA Executive Director
Added July 23, 2014
Organic milk supply is tight, consumption of organic fluid milk is increasing, feed costs are starting to rise as supply tightens and purchased organic hay is expensive, if you can find any of good quality.
The current edition of the Integrity magazine from the Western Organic Dairy Producers Alliance (WODPA) has an excellent and detailed article on the profitability of organic dairying in the West. It is viewable at www.wodpa.org . The article reports that retailers who sell organic dairy products have a system in place to ensure they operate at a 2% net profit; major organic processors are also in a positive cash flow with some reporting record sales growth expansion of product lines and increased charitable donations; but organic dairy farm families are struggling to make ends meet. The conclusion of the article is one that all organic dairy producers will agree with and applies to all regions of the country: “There is a serious economic crises occurring throughout the organic dairy community that runs throughout the western region. The most vulnerable are the young farmers and those who have leveraged themselves to stay in business. It is time to build a strategy around sound business practices that will ensure profitability for all producers.”
Horizon Organic has at last recognized what other processors and all producers across the country have known for a while, that the increase in input costs is not temporary. With an 8% growth in sales and problems on the supply side, they announced on July 8th that they have increased their base price by a dollar effective from August 1st 2014. Typically this will amount to a 3% increase in pay price with a base price of $26 per cwt, with a $3.50 MAP making a pay price of $29.50 plus any quality/component premiums. In the Northeast the two main buyers of organic milk, Horizon Organic and CROPP, are losing producers to regional processors who are offering higher pay prices and better contracts. Aurora Dairy which is vertically integrated with large organic dairies in Colorado and Texas and a processing plant in Colorado, is reported at increasing their sales of private label half gallons to supermarkets in Wisconsin and Illinois.
USDA AMS reports that the supply of organic powder is causing at least one New England food manufacturer to import from New Zealand and others to import European certified organic dairy powder to be used in organic food products manufactured in the US and then exported for sale outside the US. Buyers are being told that organic powder is not available to new accounts and that the situation is unlikely to change until mid-next year at the soonest. This is a situation of supplies not being available, not a failure to agree on price. Pricing currently quoted to U.S. customers for organic NDM ranges from $3.80 to $6.00.
USDA AMS reports total organic milk products sales for April 2014, 205 million pounds, were up 7.4% from April last year and up 13.4% year to date compared with last year. The U.S. weighted average advertised price of organic milk half gallons in July 2014 is $3.82; one year ago the national price was $3.54. The lowest advertised price, $2.99, is advertised in the Southwest and the highest advertised price, $4.48, is found in the Northeast.
Overall crop conditions for organic grains are a mixed bag with some excellent crops but also thousands of acres not planted due to excess rain and even the replanted corn and beans are looking terrible. Organic dairy and livestock consume only a small percentage of organic feed and producers are watching what the effect on supply and price of feed corn and protein will be as large organic poultry producers increase their numbers of layers and broilers.
Reports from USDA AMS and the Organic Farmers Agency for Relationship Marketing (OFARM at www.ofarm.coop ) show that prices for organic corn and soybeans are starting to rise as corn is in short supply and producers are clearing out their storage silos. It is also reported that there is a large volume of imported corn set to come into the US on the East coast. Many times organic corn will be imported through Canada though it is grown in other countries for example India. Prices for this imported corn are reported at $14-15 per bushel delivered in Pennsylvania. OFARM reports that they do have some forward contracts for fall harvest which are over $12 per bushel.
Winter wheat is still being harvested and yields are lower than expected but the quality is good. It is expected that organic wheat will be in short supply because of the tough winter conditions that resulted in some wheat fields being plowed under which means there will not be much reasonably priced feed wheat.