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Organic Pay And Retail Price
Update For May 2012

By Ed Maltby, NODPA Executive Director

ADDED May 8, 2012

Horizon Organic announced at the end of April that their MAP will be maintained at $3 or $3.50 /cwt (depending on geographic location) until the end of September 2012. Horizon’s four month seasonal payment of an extra $3/cwt starts in October and there is an expectation that the MAP will continue at the same rate over the winter as supply tightens. Organic Valley pay price continues to be the highest of the national brands but some of the regional processors are currently paying more.

Processors report that with an early spring flush there is a slight surplus in milk across the country but there is no expectation that this surplus will continue. The cost of balancing the spring flush of milk will be higher this year with a lower conventional price and milk plants at full capacity across the country.

There seems no break in the price for feed even with imports of soybeans and substitution of other grains and alfalfa in pelleted mixes. Factor in high fuel prices, increased costs in other inputs necessary for winter feed conservation, and increases in overhead costs, especially in health insurance, land rent and taxes, and it is clear that costs of production are only continuing to increase. Luckily the beef price remains high and many producers have been selling cows to pay for feed. For those that claim the MILC, March payments are estimated at $0.85 and April at around the $1 mark.

Producers across the country are still requesting another $3 per cwt to reach a breakeven point for 2012 based on sound economic analysis from independent sources using data from farmers in all area of the US. The overall message is don’t expect any increases this year and budget for the fall with continuing high feed prices and no further increases in pay price, but probably no decrease as well. All reports are that 2011 was a difficult and unprofitable year and 2012 holds no promise for any change. Across the country organic dairy farm families report that they have more debt and more over 30 day’s unpaid bills than they did two years ago.

Pay price increase
Horizon Organic increased their MAP by $2 in February 2012 and Organic Valley increased their base by $1 and MAP by $1 in March 2012, to add to the $1-1.50 increase they both gave in September 2011. Horizon will keep its increase in MAP through the summer, and producers report that Organic Valley will not take the $1 deduct that they typically do in May, June and July. One increase in pay price that farmers can plan for is the federal subsidy for all milk, the Milk Income Lost Contract (MILC) which kicked in in February and will add an extra thirty nine cents per cwt in February. The National Milk Producers Federation project that MILC will pay out  May $1.02; June 99¢; July 85¢; August 39¢. In 2009 MILC kept some organic dairies out of bankruptcy. It looks like it might do the same in 2012.

What is the effect on sales if processors pass on these increases to their retail buyers?
A $2 increase per cwt for farmers will be 9 cents per ½ gallon wholesale increase and with a 30% retailer mark-up would be an 11 cent increase. The mark-up will vary between retailers. This assumes that the processor doesn’t increase their costs over what they are paying producers.  With a 21 cent per ½ gallon increase in retail price, sales increased by 5.2 million gallons from January 2011-January 2012.

Retail Prices
USDA AMS reports that retail prices of organic half gallons have increased by an average of 7 cents per ½ gallon from December 2011 to January 2012, and by 21 cents per ½ gallon since December 2010. This data doesn’t take into account that at least 30% of milk volume is sold as private label, which has a different, more competitive, retail pricing structure and is used by retailers as a loss leader to attract customers to other organic and natural products. With the increase in retail price, the volume of sales has continued to rise, both month to month and year to year. Despite the 21 cent per ½  gallon increase in retail price since December 2010, December 2011 sales were at an all-time high with total organic fluid milk product sales of 182 million pounds, up 8.1% from December 2010, and annual sales are up 14.3% January through December 2011 compared with the same period in 2010.
Similarly with another 7 cents increase in the average retail price organic milk products sales for January 2012 increased again to 193 million pounds, up 18.3% from January 2011.

Comparing the January and March 2012 average price for retail half gallon organic reduced fat (2%) milk prices surveyed in thirty cities, shows the largest two month national average price increase since April 2008. Comparing the January and April 2012 average price for retail half gallon organic reduced fat (2%) milk prices surveyed in thirty cities, shows twenty one cities have higher prices for April, seven lower prices and two unchanged. The average retail price for April is down from March at $3.96/half gallon. Chicago, at $4.74 for the April average, is the city with January to April average prices up the most, 45 cents, as well as the highest April price among the surveyed cities.  Washington, D.C., at $3.69 for the April average, is the city with January to April average prices down the most, 30 cents.  Denver and Houston are tied for the lowest April average price, $3.14.  It should also be mentioned that Denver experienced greater three month price volatility than any other surveyed city, increasing 40 cents from February to March, and then declining 50 cents from March to April.

Organic store brand ½ gallon milk can still be purchased for $2.29, nearly $2 cheaper than branded milk not on sale which is averaging $3.96 / ½ gallon. Obviously organic milk continues to be a loss leader to attract customers to other organic products. Organic dairy processors continue to compete to supply low priced store brand milk.

The AMS Dairy Market News Survey which generated the current national organic half gallon milk weighted average advertised price of $3.87, also determined the weighted average advertised price for non-organic half gallons as $1.41, a $2.46 price spread, up from $1.47 two weeks ago, $.96 four weeks ago and $.78 six weeks ago.  Most of the reason for the increasing trend relates to increasing prices for organic milk rather than declining prices for non-organic milk.

Sales of organic fluid milk in February were 12% higher than in February 2011 with an average retail price 20 cents higher than February 2011. Sales of private label continue to grow as some consumers move away from the higher priced branded product to store brand. Aurora and Organic Valley are the top two suppliers private label milk.

Month

Average
retail price

Change in
retail price

Milk volume in
million pounds
sold as fluid

Dollar increase in
retail revenue from
Dec 2010 base

Producer
share**

Processor/
retailer
share***

Dec-10

 $       3.66

 

168

0

0

 $          -  

Jan-11

 $       3.66

 $     -  

171

0

0

 $          -  

Feb-11

 $       3.70

 $  0.04

157

$ 1,460,465

0

 $ 1,460,465

Mar-11

 $       3.72

 $ 0.02

183

$ 2,311,628

0

 $ 2,311,628

Apr-11

 $       3.75

 $ 0.03

170

$  3,497,674

0

 $ 3,497,674

May-11

 $       3.70

 $(0.05)

173

$  1,486,047

0

 $ 1,486,047

Jun-11

 $       3.75

 $ 0.05

163

$  3,381,395

0

 $ 3,381,395

Jul-11

 $       3.77

 $0.02

167

$  4,158,140

0

 $ 4,158,140

Aug-11

 $       3.76

 $(0.01)

171

$  3,760,465

0

 $ 3,760,465

Sep-11

 $       3.76

 $   -  

182

$  3,760,465

$ 2,275,001

 $ 1,485,464

Oct-11

 $       3.76

 $    -  

180

$  3,760,465

$ 2,250,001

 $ 1,510,464

Nov-11

 $       3.74

$ (0.02)

175

$  2,946,512

$ 2,187,500

 $ 759,010

Dec-11

 $       3.80

 $ 0.06

182

$  5,486,047

$ 2,275,001

 $ 3,211,045

Jan-12

 $       3.87

 $ 0.07

193

$  8,627,907

$ 2,412,501

 $ 6,215,406

 

 

 

 

 

 

 

Total

 

 $ 0.21

 

 $  44,637,209

$ 11,400,004

$35,512,204

If all of increase
return to
producer/cwt

$4.88

 

Actual return to
producer/cwt

$1.25/cwt

 

** Producer share is calculated at an increase of $1.25/cwt based on 23.2558 ½ gallons/cwt multiplied by total volume of fluid milk sold
*** Processor/retail share is based on the increased cumulative income of a higher retail price than they received in December 2010

 


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