November 2014 Feed, Pay
and Retail Price Update
By Ed Maltby, NODPA Executive Director
Added November 17, 2014
In the Northeast, competition for milk supply is increasing, with expansion plans by established and new processors who are looking for more producers in certain geographic areas. There are reports that supermarket shelves are empty and under supplied. With the current high costs of inputs causing some drop in production; some reduction in herd size because of a high cull beef price and producers leaving organic production, the supply of organic milk is not increasing enough to satisfy the increase in demand. Producers have changed production practices and economized on inputs and the only way to increase supply is to increase the base pay price to give producer confidence in long term profitability.
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 base 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 less than it has been.
Processors may be looking to imports of organic powder, beef and butter to satisfy some demand but this short term solution will do nothing for the long term stability of US organic dairy and put organic in the same place as non-organic dairy product - reliant on the fluctuations of the world market.
This increased competition and shortage of supply has forced the national brands to raise they pay price to retain producers. Horizon confirmed recently that they will be initiating a winter feed premium of $1 for the period of Oct 1 through Dec 31, and will be adding an additional $1 on the MAP effective Oct 1st through at least June 31, 2015.
The dairies looking for organic milk include the following:
Producers are in a stronger position to negotiate for a higher pay price to compensate for higher cost of inputs as they renew contracts, or change buyers or talk with their cooperative about the annual decisions around increases in member compensation. CROPP lost nine out of its ten Central Valley California dairies, and these former members have formed Organic West to sell milk on the open market, possibly to Commonwealth Dairies who are now processing in Arizona as well as Brattleboro, VT. There are numerous reports in the northeast of producers planning to switch buyers to take advantage of higher base prices and signing bonuses.
There is also an increase in demand for producers who qualify for the grass fed label as CROPP expands its available routes in New York and Vermont this fall. CROPP’s “Grassmilk” producers can expect a $5/cwt premium above the normal CROPP pay program when they qualify for the grass fed program. The Grassmilk standards include:
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 to organic production unless there is the promise of a future higher pay price for organic.
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 dairy 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, 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.
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.
With the harvest of feed in full swing there is uncertainty over yield, quality and where the price will end up. Other concerns include transportation, storage, moisture levels, drying costs, and mixed wheat yields and protein levels due to weather challenges and associated plant diseases.
With the increase in demand for organic poultry there is a very real competition for available feed and an increase in imports. In the Midwest and the Northeast, there is an adequate supply of conserved forage and late grazing. In the West, the picture continue to be bleak as the amount of affordable hay and feed available threatens the survival of organic dairies. Prices are steady to lower on organic corn and steady for all other commodities. Demand for organic corn and soybeans is light to moderate, organic wheat is moderate to good and on other organic smaller grains light to moderate.