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Organic Dairy: Forecasts for 2015 and Beyond

To kick off the 2015 new year, we asked a number of folks to share their forecast for Organic Dairy in 2015. We invited individuals from different backgrounds and occupations in order to have a variety of perspectives to share with you. We
had no editorial control and have not edited their submissions.

Added January 14, 2014

Kevin Engelbert, NYS Organic Dairy Farmer:

I present my forecast for Organic Dairy in 2015 with one caveat: if the inevitable collapse of the U.S. economy occurs in 2015, my predictions cannot be held against me!
When writing about the future from an economic standpoint, the normal factors for a business are supply and demand. While they certainly are part of the equation for Organic Dairy in 2015, there are many other facets unique to the organic dairy sector that must be included.

I believe the demand for organic dairy products will continue to grow as more consumers become educated about the differences between how conventional milk and organic milk are produced, and also the differences in the manufacturing of various dairy products. All indications are that the increase in demand will continue at 2014’s rate or slightly higher.
With regard to the supply of organic milk, I do not think production will keep pace with the increase in demand, for a number of reasons, the biggest being that there are very few conventional dairy farms transitioning to organic.

Another reason I believe supply won’t keep up with demand is because there are still organic dairies exiting the business, and while some organic dairies are expanding, their expansion isn’t enough to make up for the loss in overall cow numbers.

That leads me to other unique facets of organic dairy production. The supply of organic grain continues to be a limiting factor, and I don’t see how that can change fast enough to make a big difference in organic milk production. The thousands of organic crop acres that went back into conventional production during the last few years will need to transition for three years before they can produce organic crops again.

Another consideration that must be taken into account is the National Organic Program, and whether or not the NOP will finally start truly enforcing the National Rule. There are operations milking thousands of cows that continue to produce milk without any meaningful pasture for their animals. These same entities also continue to sell their new born calves and buy in conventional yearlings to maintain herd numbers.

Along the same lines, if the illegal poultry operations are either forced to comply with the law or go back to conventional broiler and egg production, the price of organic grain will drop and less will be imported from countries lacking the certification oversight we have in the United States.

If these scofflaws are cracked down on like they should be, the future of organic dairy will brighten almost immediately. Consumers will begin to regain trust in the USDA organic label when only true organic dairy products are on store shelves.

An additional development in organic dairy involves the 100% grass-based label. Demand for grass-fed milk and beef has skyrocketed in the past year, and many dairies have stopped feeding grain, due to it’s high price, and have left their past marketing organization for the organic, grass-fed label.

So, all in all, I’m bullish on Organic Dairy for 2015, even with conventional grain and milk prices falling dramatically. Organic dairy has enough complicating factors to keep the demand for organic dairy products high, the competition for raw organic milk increasing, and for the main cost of production (purchased grain) to drop enough to help organic dairies regain profitability.
Kevin Engelbert, a New York organic dairyman, milking 140 cows that, along with his family, was one of the first certified organic dairy producers in the U.S. and served on the NOSB.

John Bobbe, Executive Director, OFARM:

What do fracking sand, imports, GMO contamination, land rent and chicken have to do with organic grain prices? Any organic dairy farmer knows that grain prices have made feeding organic grain hard at today’s organic milk prices. Let me list a few factors that even organic grain farmers have very little control over.

In 2008, when organic grain prices crashed to around $5 for corn at the farmgate, 35,000 to 50,000 acres left organic production permanently. Only recently have some organic grain operations begun to expand acreage and there is a small transition of producers into organic grain production.

We currently produce only half of the organic grains needed by our domestic market which includes organic dairy. About 50% of the organic corn used in the U.S. is imported according to Lynn Clarkson of Clarkson Grain in Illinois. And often times, organic corn imports are timed to keep prices at or below levels a short market would allow them to rise to. The end result is less incentive for producers to add more acres or transition.

Organic chicken continues to be at the forefront of consumer demand rising double digits for the past several years and into the foreseeable future. Organic eggs and chicken growers, many on a large scale seem to feel they can afford $14 plus a bushel corn. This is also reflected in the demand for other grains such as small grains, feed wheat and soybeans for meal.

High conventional grain prices for corn and soybeans has resulted in a bidding war for crop land acreage. In many of the grain producing states in the Midwest, $300 per acre on up to as high as one report of $750 per acre have limited organic producers ability or willingness to pay these prices. An average yield of 150 bushels with $300 per acre rent adds $2 a bushel before the seed even leaves the bag.

Another factor organic grain producers are assaulted with every day is GMO contamination. Primarily in the food grade market, especially for the European Union, testing costs range from $75 for a quick test to $350 for a more accurate test. A survey done by OFARM and Food and Water Watch showed the average cost of a rejected load of grain to run upwards of $5000 per 1000 bushels with the farmer eating most of the cost.

And what does fracking sand have to do with all this? Grain hoppers can and do haul fracking sand. Whereas the cost for a loaded mile of grain was $2.50-$3, fracking sand hauling pays $4 a loaded mile or more. Often times, organic farmers can wait for weeks to get an available truck to haul the grain. And the railroads are so busy with oil tankers they could care less about a few cars of organic grain.

There is a saying, “Cheap grain means cheap milk, means cheap meat.” While the recent increase in milk pay prices is a step in the right direction, the increases were less than half what is needed for organic dairy farms to be profitable.

On a positive note, OFARM, with funding from the Ceres Trust, just released a series of videos titled, “Eight Ways to Get Consumers to Buy Organic.” Eight grain and livestock producers from Midwest states tell their story to consumers, especially food coop customers. The subjects include: getting the real thing when you buy organic, the next generation of organic farmers, importance of pollinators, women, local foods, organic as high tech, biodiversity and organic eggs. You can view them at www.organictherealnatural.com. Each video comes with two pictures and a press release story to go with it. Help us get the word out about the benefits of buying organic to your family, friends and neighbors. It is something we can do to keep organic growing.

John Bobbe is the Organic Farmers’ Agency for Relationship Marketing (OFARM, Inc) executive director. OFARM is a farmer cooperative with six member organic grain and livestock cooperatives with membership in 19 states. (Website: www.ofarm.coop)

Andrew Dykstra, WODPA President
(pictured below at right)

Greetings from the West coast! So here’s a few of my predictions for 2015.

As President of WODPA I’ve been writing about changes that would be coming; took a lot longer than I had expected, but change is here. Hopefully WODPA’s recommended changes to the “Origin of Livestock” will happen by late spring of 2015! I’d expect something with the Organic Research and Promotion Programs to happen in early 2015, whether a person approves of it or not. Personally, I think if we keep the cost to our consumers under control that 2015 will continue to see excellent growth in the organic dairy case. I see all of the GMO labeling elections continuing; win or lose, I see the elections as “free” advertising for us. That being said, there will be a lot of competition for the ORGANIC dairy farmer’s milk and beef in 2015!

Andrew Dykstra and his family started operate their organic dairy farm in Northwest Washington 1989 and their farm includes vegetables, seed crops, and dairy.

Sharad Mathur, Chief Operating Officer, Dairy Marketing Services, Syracuse, NY:

Wouldn’t It Be Nice – A 2015 Wish: Consumers continue to be more interested in how their food is produced. As a result, the demand for organic milk is on the rise and processors in the Northeast are considering the opportunities for providing more organic options to consumers – this is good for our farmer members. How can we increase our organic milk supply in order to capitalize on the growing demand? Higher pay price is always an incentive. However, it is hard for the organic companies / processors to keep increasing the price to consumers. As with any product, when prices rise too high, demand falls off.

The industry should continue to look at the costs and find efficiencies in our system. Today, every organic handler coordinates the pick-up and delivery of milk from their member farms on separate trucks. Sometimes it takes as long as 24 hours to fill a truck load of milk thus creating a huge cost. Wouldn’t it be nice if we can minimize the hauling costs in order to bring more money back to the farms producing organic milk and thereby attracting more farms to produce organic milk?

Dairy Marketing Services (DMS) was created for that very reason. DMS works to reduce costs and increase efficiencies for our members by assembling, transporting and marketing milk for multiple handlers. The same model could work for organic handlers as well. Each organic handler would continue to manage their farms and the pay programs but the milk could be assembled and delivered by a neutral party on common trucks being dispatched on the handlers’ behalf.

Consider looking into this concept and exploring these efficiencies in 2015. Happy New Year!
Sharad Mathur can be reached at Dairy Marketing Services, 315-433-1115 ext 5523

Harriet Behar, MOSES Organic Specialist:

The need for more organic crop production and dairy production will continue into 2015. Even with commodity crop prices dropping, the high price of land rental has not gone down. More than 50% of the land in the Upper Midwest is cropped under rental agreements. This makes it difficult for organic producers to compete with nonorganic producers for land, even land that has been fallow (such as CRP). Organic producers will need to be creative in finding land, perhaps seeking out landowners who have an environmental ethic, such as members of environmental groups who might be willing to take a lower rental price, based on the soil building crop rotation or grazing activities the organic producer can offer. Educating landowners that not every year will have a high value crop, and that organic producers can better steward the land when they have the protection of a long term lease, are important in having these landowners work well with organic farmers.

While nonorganic producers are beginning to embrace some fundamental organic principles such as soil health and use of cover crops, the gap between organic and nonorganic production systems will continue to grow. Organic producers seek out diverse rotations and some practice livestock cross breeding for traits that support pasturing as well as longevity and vigor. Organic farmers will continue to diversify pasture mixes, cover crop mixes and small grain production. Unfortunately, less and less pasture, hay and small grains will be seen on nonorganic lands in 2015. This can have a negative effect on organic producers by lessening the availability of custom planting or harvesting services. We already know how hard it is to hire someone who knows how to cultivate!

The organic marketplace will continue to grow, in spite of periodic negative press the organic label receives from both outside and within our own community. The lack of domestic production to meet this demand will lead to an increased importation of organic feeds and organic livestock products. It is hard to say if this will result in downward pressure on prices for organic domestic producers. There is a place in the U.S. for many new organic producers of all types and sizes, this is good news!

The resiliency of the organic production system is just beginning to be recognized, and deserves a lot more praise and dollars than it currently receives! In 2015 and beyond, the greater society will slowly wake up to the fact that we can no longer even consider environmentally damaging agricultural systems, nor even environmentally benign ones as acceptable. We must move towards organic environmentally beneficial systems which include the corresponding economic rewards for those who steward the land and protect our ecosystems for future generations.

Harriet Behar MOSES Organic Specialist (Midwest Organic and Sustainable Education Service) harriet@mosesorganic.org

Mike Davis, Member Services Manager, Upstate Niagara
and Jodi Smith, Senior Dairy Market and Policy Analyst, Upstate Niagara:

Opportunities and Optimism Cultivate Market for Organic Dairy Products: The old adage that ‘hindsight is 20/20’ certainly reigns true when it comes to forecasting— “If only we could have seen that drought coming … our forecasts would have been better.” While hindsight is useful for understanding what occurred, it can also shape expectations that are incorporated into any great forecast.

So let’s start there… 2014 has turned out to be a great year for organic dairy farmers. At retail, demand for organic dairy products was incredibly strong. This increased demand has resulted in an extraordinarily tight supply of organic milk in the Northeast. Farmers throughout the region have only felt mild relief on input costs, so the resulting competition in the countryside has benefited farmers greatly.

With the organic dairy category at retail continuing to grow, the opportunities for organic dairy products are vast. There are likely to be new opportunities in product offerings—for example, consumers may be interested in purchasing all of their favorite dairy products made with organic milk. Additionally, and potentially more significantly, larger retailers are progressively interested in securing organic supplies to attract and maintain their customer base. The growth in specialty retailers is spurring this growth and interest.

While the growth in this category has been incredible over the past several years, consumers of conventional dairy products have seen prices for their favorite products rise, often closing the gap between choosing organic and conventional dairy products. The close spread between pricing for the two products may have driven some additional sales of organic dairy products. The expectations of lower prices to dairy farmers for conventional milk in 2015 may translate into a larger spread between the two products. In the end, the purchase decision will be a direct result of their willingness to pay for the attributes of organics. Counter to this, though, is the notion that the economy in the United States is recovering somewhat and consumers may be willing to absorb the additional cost of organic dairy products.

Looking ahead, Upstate Niagara continues to be a keen participant in the Northeast market for organic milk. The Cooperative will continue to review all organic opportunities at the commercial level and evaluate its ability to serve those markets and customers in an economical way. As such, it is the goal of Upstate Niagara to remain competitive on pay prices for organic dairy farmers. The Cooperative works diligently to maintain a healthy organic supply/demand balance to service its customers in the most efficient and cost-effective ways.
In short, many exciting things lie ahead in 2015!

Mike Davis, Manager, Member Services and Jodi Smith, Senior Dairy Market and Policy Analyst, Upstate Niagara

Bruce Drinkman, MODPA Treasurer

The upcoming year seems to be one of few definite answers. There appears at this time to be a fair amount of upside for the organic market as a whole. The processors appear to be in need of more milk and more producers. They appear eager and willing to sign on new producers if they are already in an area that they are serving. The number of farms in transition is relatively low however so this will probably limit the number of new producers for the near future. The same appears to be true for the crop farmers. There will likely be additional interest in some making the change from conventional given the drop in price in the conventional market. The organic market will appeal to them in the sense that the organic price has been more stable over the last few years. The high commodity prices in conventional appear to be over for a while. This may be as good of a time as any to encourage your neighbor to look at making some changes.

The continued press in regards to the benefits of an organic and GMO free diet will only help. There appears to be much more public awareness than ever on these issues. This should give us a lot of opportunity to state our case and also promote ourselves. This is also going to be a good opportunity for the processors to gain market share. I hope they do this in a manner that can help all farmers gain from the additional possibilities. It seems sometimes they forget where their bread and butter come from. The spike in prices over the last couple of years in the conventional prices may have been a blessing in some ways as it appears to have narrowed some of the price gap at the grocery store. I believe this will also make organic appear more attractive to the consumer. The weather for the upcoming year will also likely be a wild card as there does not appear to be anything that we can call normal any more. We appear to be in a favorable situation that should bring growth to our market and more opportunities for all of us.

Bruce Drinkman organic dairy farmer and MODPA Treasurer, Glenwood City, WI, 715-265-4431.

Miles McEvoy, Deputy Administrator, National Organic Program, USDA-AMS:

The USDA National Organic Program’s responsibility is to protect the USDA organic seal, from farm to market, around the world. We do that through three primary mechanisms – establishing clear standards that establish a level playing field for organic farms and businesses; making sure that organic certifying agents are properly and thoroughly verifying that organic products comply with the USDA organic regulations; and taking appropriate enforcement actions when there are violations of the organic standards.

Our focus in 2015 includes:

USDA organic regulations: The Agricultural Marketing Service plans to publish proposed rules on Origin of Livestock, Pet Food, Aquaculture and Animal Welfare in 2015. We look forward to your comments on these proposals. In addition, the NOP will continue to support the work of the National Organic Standards Board, and provide clarifications through guidance and instructions to organic producers, handlers and certifiers.

Certifier Accreditation and International Activities: In 2015, the NOP will conduct certifier audits throughout the U.S. and in more than a dozen countries to ensure certifier compliance with the USDA organic regulations. The NOP will conduct assessments of organic trade arrangements to make sure the arrangements are properly implemented. In addition we will continue to work with Latin American governments to support effective control systems and internal market development. The NOP recently provided the USDA organic regulations and NOP Handbook in Spanish to support Spanish-speaking members of the organic community.
Compliance and Enforcement: The NOP will continue to investigate and act on regulatory violation complaints, and manage appeals, as they are received by the program. Last year, the NOP issued over 200 enforcement actions, including 9 civil penalties for $81,500 for knowing violations of the Organic Food Production Act. These compliance activities support consumer confidence in the USDA organic seal and protect certified operations operating in compliance with the standards.

Sound and Sensible Certification Standards: Many farmers and agricultural businesses have not taken advantage of organic market opportunities because of a lack of technical information, recordkeeping challenges involved in certification, and inconsistent certification processes. In 2013, the National Organic Program initiated a “Sound and Sensible” initiative to make organic certification more accessible, attainable, and affordable for small and beginning farmers. The NOP will continue to identify the near-term policy changes and clarifications that will streamline requirements; refocus certification and oversight on practices rather than paperwork; and support the Secretary’s 2013 Organic Agriculture Guidance to eliminate duplicative requirements through cross-USDA collaboration.

USDA Outreach: The NOP supports the USDA-wide Organic Working Group (including the Organic Literacy Initiative), and facilitates implementation of Secretary Vilsack’s Departmental Guidance on Organic Agriculture.

I look forward to another busy and productive year. Please let me know if you have any questions or concerns. If you have specific ideas on how we can improve our work or services please get in touch with me, Miles McEvoy, at miles.mcevoy@ams.usda.gov.

Andre Brito, Assistant Professor of Organic Dairy Management,
University of New Hampshire, Durham:

The “Grass Fed” Milk Dilemma: In my opinion the most discussed subject within the organic dairy industry in the Northeast in 2014 was “grass fed” milk. Even though the term still loose, “grass fed” milk is characterized by feeding cows only pasture and conserved forage (e.g., grass and legume hay, baleage, silage, etc.) without grain supplementation year-round. It is worth noting that farmers shipping “grass fed” milk are allowed to use liquid molasses as an energy supplement by specific certifiers (e.g., Pennsylvania Certified Organic) and processors (e.g., Organic Valley). However, before making a decision to remove grain from organic dairy diets, farmers and proponents of “grass fed” milk should consider the following points:

Forage quality: I would say without any hesitation that forage quality is the bottleneck for implementing a successful no grain feeding regime. In general, forages are bulky and depress feed intake, which reduces milk production. Therefore, feeding high-quality forage is crucial to maximize feed intake and milk production. It is well known that rotational grazing is a management strategy that maximizes both pasture quality and digestibility, which can not only increase milk production but also milk fat and protein. Farmers should also consider adopting additional management strategies such as “hay in a day” and p.m.-cutting hay or baleage, which are known to improve forage quality (i.e., more sugars and starch) and digestibility. Use of alternative forage crops (e.g., BMR sorghum, sorghum Sudan, millet, etc.) as a management tool to extend the grazing season and enhance digestible forage intake should be considered by farmers who are transitioning to a no grain feeding regime.

Herd records: Even though organic dairy farmers are overwhelmed by certification paperwork, keeping accurate herd records are essential for successful dairy enterprises. One of the major concerns of feeding high-forage diets is excessive protein intake in detriment of energy intake leading to high MUN. High MUN may result in poor reproductive performance particularly increasing calving interval (ideal = 12 months or one calf/year). Therefore, accurate breeding records will help farmers assess how the implementation of a no grain feeding regime is impacting herd reproductive performance. In addition, implementation and record keeping of body condition score, which should be done regularly, is an excellent strategy to help farmers further assess the effects of high-forage diets on cow reproduction and health. Farmers should consider paying for DHIA services as an effective way to follow herd heath.

Profitability: The most outstanding justification that I heard from farmers who are currently adopting or considering to adopt a no grain feeding regime was skyrocketing grain costs and expensive grain bills. Indeed, dairy farms in which cows receive exclusively forage diets have lower production per cow than non-grazing dairies, but have the potential to be economically competitive because of lower operating and overhead costs. However, eliminating grain from dairy diets does not necessarily correlates with profitable dairy enterprises. For instance, a recent study from the University of Wisconsin (Dr. Victor Cabrera’s Laboratory) showed that Wisconsin organic dairies having predominantly Holsteins and relying on a greater variety of feed ingredients and greater amounts of grain had higher income over feed costs than farms using predominantly non-Holstein breeds and relying more heavily on grass-based diets.
Environmental impact: Organic agriculture is perceived by the general public as a more environmentally-friendly way to produce food for humans. Several scientific studies conducted with dairy and beef cattle showed that feeding exclusively forage diets increase methane emissions to the environment. Methane is a potent greenhouse gas that is contributing to global warming. High-forage diets often results in overfeeding protein to cows, thus contributing to excess nitrogen excretion to the environment. However, enhancing forage quality has the potential to minimize both methane emissions and nitrogen excretion to the environment. Thus, feeding high-quality forage should be the central goal in “grass fed” farms not only to mitigate losses in milk production but also to minimize the environmental impact of organic dairy systems.

Finally, I would state that the points discussed herein and many others (e.g., dairy breeds, direct marketing, omega 3 and CLA milk, etc.) should be carefully evaluated before making a decision to fully adopt a no grain feeding regime and the potential to capitalize on additional premiums for shipping “grass fed” milk. As a result, a careful plan of action should be designed and implemented over time when transitioning to a no grain feeding system.

André F. Brito is an Assistant Professor of Organic Dairy Management, Dept. of Biological Sciences, University of New Hampshire, Durham. andre.brito@unh.edu; 603 862-1341