cows in field

Organic Pay & Retail Price, June 2013


By Ed Maltby, NODPA Executive Director


MILC Payment

September 2012








January 2013


















Forecast provided by NMPF and based
on CME futures as of 5/8/13

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 September 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. There has been no growth in sales year over year for 2012-2013 of fluid milk as recorded by the Federal Milk Marketing Orders (FMMO) but reports are that more milk is being diverted into manufacturing with less milk being balanced on the conventional market. Competition for milk is increasing with the strengthening of some independent processors and the introduction of a few others, for example MOO Milk in Maine, Trickling Springs in Pennsylvania and Natural by Nature in Pennsylvania.

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. Organic Valley is responding to reported increases in organic production in New Zealand and Australia by sending some of their members to these countries that have perfect low cost production climate and practices. Jerry McGeorge, director of cooperative affairs, and Eric Newman, vice president of sales, used Organic Valley’s annual meeting in April 2013 to raise the question of whether the nationwide cooperative wants to go global. “The consumer demand is there,” Newman said, “outside farmers want in, particularly in Australia where Organic Valley already buys organic beef, and the availability of foreign-sourced organics requires creative partnerships that don’t flood the market and cause price wars.”

Dean Foods plans to sell its remaining WhiteWave shares (owners of the Horizon brand), within 18 months, No changes are expected at WhiteWave's headquarters in Broomfield where about 550 are employed, said Blaine McPeak, WhiteWave's president. The company also plans to open a corporate office in Denver and Gregg Engles, WhiteWave's chairman and chief executive, will be based in Denver. Similar to Organic Valley, WhiteWave is looking to expand its plant based beverages but has pledged their support for their organic milk partners.
MILC payment started on January milk with projections offering modest payments through to May 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 do 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.

June 2013paypricevsnet1

On may31st USDA Agricultural Marketing Service (AMS) reported sales of organic fluid milk were 186 million pounds in March 2013, up 0.1% from March 2012. Bucking the trend in general milk consumption, organic Whole Milk sales for March 2013 were at 49 million pounds, up 7.5% compared with March 2012 and up 5.2% year-to-date compared with last year. Organic Reduced Fat Milk sales for March were 52 million pounds, 1.6% above sales one year earlier and 0.9% above year-to-date.

June 2013_Salesoforganicmilk2

The average retail price for an organic half gallon in May was $3.43 with a $1.80 range in the highest and lowest prices ($2.59-$4.29). The trend in the average retail price for an organic half gallon has been slowly rising from $3.41 in January 2012 to $3.60 in May 2013. The weighted average advertised price for national brands is $4.09 and for store brands, $2.50. The region with the highest average price is the Northeast with $3.69 and the Midwest has the lowest, $2.59.

June 2013_Averageretailprice3

The current national organic half gallon milk weighted average advertised price of $3.43 compared with the weighted average advertised price for non-organic half gallons, $1.63, yields an organic-conventional half-gallon milk advertised price spread of $1.80. The smaller the difference betwwen organic and non-organic prices the more attractive organic is to consumers.

June 2013_Organicconventionalpricegap4

Organic dairy producers 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 38% on average.

June 2013_Shareoftheretaildollar5

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.

June 2013_Salesoforganicmilkcompared6

There is no independent data for the volume of milk going into manufacturing or into the non-organic market