Organic Pay & Retail Price Update
for April 2013
By Ed Maltby, NODPA Executive Director
Forecast provided by NMPF and based
on CME futures as of 3/13/13
ADDED April 9, 2013.
Organic milk processors and buyers have implemented increases in pay price through seasonal Market Adjustment Premiums (MAP’s) (with Horizon extending their seasonal payment to June 2013) but costs are rising as rapidly as the premiums are extended. Producers are reporting record high farm-gate pay prices this winter, between $35-$40/cwt with quality and component payments added, but are still having difficulty paying bills. In the Northeast, both Horizon and Organic Valley are paying the same pay price before quality premiums are added, $30-31/cwt when seasonal MAP’s are averaged over the whole year, which is only $3 higher than 2008. Competition for milk is increasing with the strengthening of some independent processors and the introduction of a few new business, for example MOO Milk in Maine moving into the Boston market, Trickling Springs in Pennsylvania and Natural by Nature also in Pennsylvania.
MILC payment will start to kick in on January milk with projections offering modest payments through to June 2013.
As the new norm of high costs of inputs becomes established, organic dairy producers across the country are re-assessing how to achieve profitability. UVM Extension and NOFA Vermont have been collecting economic data from 40 Vermont organic dairy farms over the last eight years and will continue for a ninth year to collect 2012 data. Their results over 8 years indicate a continued period of low profits that does not return even a low amount of $35,000 for unpaid family labor for more than half of the farms in the study. In contrast, in 2006 the average farm in the study earned $58,443 before family living and the return on assets was 4.2%. Farm gate milk price was highest in 2008 at $30.90 per cwt and hasn’t increased from 2008 to 2011. With expected increased expenses, the profits from organic dairy farms will likely decline further without some dramatic increase in income. So farmers may not have much choice except to increase milk production per cow or add more cows.
USDA AMS reports that the total organic fluid milk sales for January 2013 of 189 million pounds, down 1.8% from January 2012. Organic Whole Milk sales for January 2013 of 51 million pounds were up 7.2% compared with January 2012. Sales of organic whole milk increased by 10% in 2012 over 2011 as opposed to an increase of only 2% in organic Fat Reduced, which goes against the trend of previous years. Organic fluid milk sales for 2012 were 4% higher than in 2011, an increase in retail sales of 3.25 million ½ gallons of organic milk or the production from 98 herds of 60 cows producing an average of 14,000 lbs per year. As we have seen smaller herd disappear from organic production one must assume that this increase in production comes from larger herds that have economies of scale.
The national weighted average advertised price of organic milk half gallons in March 2013 was $3.59, is 19 cents higher than two weeks ago, and 30 cents higher than January 2013. The price range, $2.79 to $3.99 which is the smallest gap in 2013 showing that the higher level of retail price has dropped from a high of $5 per ½ gallon in February 2013. The region with the highest average price is the Southeast, with $3.91, while the South Central has the lowest, $3.13. This is the first period of 2013 that the Northeast at $3.33 has not had the highest average price.
The all-important gap between non-organic and organic retail price on average is now down to $1.55 per ½ gallon which is one of the lowest this year but not as low as one year ago when the price spread was 96 cents, with conventional half gallons priced $2.12 and organic half gallons priced $3.08. The smaller the difference betwwen organic and non-organic prices the more attractive organic is to consumers.
Organic dairy producer are still lagging behind non-organic dairies in their share of the retail dollar, with non-organic dairies receiving approximately 50% of the retail dollar and organic around 37% on average.
Most dairy buyers and milk brokers will assume the elasticity of demand for organic milk and how closely an increase in price will decrease sales. The evidence for the total market does not confirm this premise as USDA AMS data shows total sales (which include store brand) increase despite higher prices and but may mean that consumers move to store brand product if brands raise their price. Volumes of purchases appear to be affected more by seasonality and the conventional/organic price gap than an increase in price of $0.30-60 cents per ½ gallon. This does not differentiate between store brand and branded product and possibly consumers will move to store brand milk as branded products increase in price.
The current market data shows that Horizon is still the leader for sale of retail fluid product but store brand is now in second place ahead of Organic Valley/Stoneyfield Farm brands. Market reports also indicate that more organic milk is going into manufacturing than usual at this time of year as producers adapt their production systems to a higher seasonal price. How this will affect the traditional spring flush of milk which is usually put into manufactured product or sold on the non-organic market is uncertain especially as last year the increase was much less than usual. Organic Valley is responding to reported increases in organic production in New Zealand by sending some of their members to this country that has perfect low cost production climate and practices.