September 2014 Feed, Pay
and Retail Price Update
By Ed Maltby, NODPA Executive Director
Added September 8, 2014
The headline is the same as the last few months ‘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.’
In the Northeast, competition for milk supply is increasing with expansion plans by Upstate Niagara and Stonyfield, both looking for producers in certain geographic areas, and the national brands working to keep their producers by offering small incentives on pay price. Producers are in a stronger position to advocate for a higher pay price as they renew contracts or talk with their cooperative about the annual decisions around increase in member compensation. There is also an increase in demand for producers who qualify for the grass fed label as CROPP expands its available routes for producers.
The conventional pay price is still high, the beef cull price has shown no sign of dropping, and conventional feed is cheap so there is no economic incentive to transition unless there is the promise of a future higher pay price for organic. With an average growth rate of 7-8% a year in fluid sales and increasing demand for organic dairy in manufactured product, now would be the time for organic buyers to schedule higher pay prices for the next few years as, with higher profits for conventional producers, it makes it easier to transition to organic production as the cost of transition would be minimal.
USDA AMS reports that organic dairy production continues to expand in Texas and the Southwest, where some producers owning large herds are aggressively seeking to expand cow numbers. A number of smaller herds of organic producers transitioning out of organic production have been purchased in their entirety and added to existing large herds. The current high price of organic beef and organic feed continues to encourage some organic producers to leave organic production. Some sales of organic cows are for slaughter, rather than to existing producers for herd expansion or transitioning into conventional production. At an auction in Oregon last week, organic cows sold for slaughter continued to bring a premium over conventional cows. The top ten organic cows auctioned brought an average price of $1.7218 a pound, compared with a $1.2963 average for the top ten conventional cows.
USDA AMS reports total organic milk products sales for May 2014, 211 million pounds, were up 8.1% from May last year and up 12.4% year to date compared with last year. The U.S. weighted average advertised price of organic milk half gallons in August 2014 is $3.34; one year ago the national price was $3.50. The lowest advertised price, $2.99, is advertised in the Southwest and the highest advertised price, $4.99, is found in the Northeast.
Varied food retail and investment enterprises are showing increasing interest in the organic dairy sector. Consultants for national supermarket chains are gathering historic data of organic milk and dairy product retail prices, noting regional and national factors, as they evaluate future organic dairy product strategies.
Market researchers for various investment funds and investment banks, not traditionally involved in the organic dairy sector, are looking at data describing performance of retail pricing and product emphasis, as decisions about future capital investments are made.