cows in field

Pay Price & Organic Milk Market in March 2011

By Ed Maltby

ADDED March 14, 2011. Organic dairy will enter 2011 in a surprisingly strong position with sales increasing at a double digit pace over last year and supply tightening across the country. The two remaining national processors of organic dairy, CROPP/Organic Valley and WhiteWave/Horizon Organic, are looking for producers and both have lifted any restriction on production either through a quota or by contract. Supply is still in slight surplus in the West and processors are looking to specific geographic areas to increase their production, mostly in the East. Both companies have absorbed producers from companies that have left organic plus there is some ‘poaching’ of producers from each other. Payments for winter production have kicked in; the price of organic grain and feed is still stable, and Milk Income Loss Contract (MILC) payments will start again early in January. Whatever clouds are on the horizon with increased feed and energy costs and the uncertainties of how the Access to Pasture rule may be interpreted, most organic dairy producers see a positive outlook for 2011.

This positive picture and unexpected increase in demand could not have been foreseen in early 2010 while the economy was still in recession. In retrospect, this rapid turnaround can be attributed to the increased confidence from the core organic consumers who were less affected by the recession and who place a greater priority on the quality of their food. The repercussions of the downturn in demand in 2009 saw the exit of one national processor (HP Hood/Kemp) and several regional processors (Humboldt Dairy, Organic Choice) plus the restructuring of Lancaster Organic Farmers Cooperative (LOFCO) and merging of 53 of their producers with Organic Valley, the formation of MOO Milk and the increase in the volume of organic milk controlled by Dairy Farmers of America (DFA). During 2009-2010, some recently transitioned producers (mostly those that were encouraged to transition by HP Hood) exited dairy or returned to non-organic production; some producers took early retirement and many other producers experienced a loss of equity and cash flow difficulties. During 2009-2010, many vendors who were facing their own economic challenges shortened their credit terms with producers who in turn were faced with a reduced volume of milk but rising fixed and overhead expenses. As an indication of profitability in 2009 and into 2010, the most recent survey results from the ongoing study by University of Maine and Vermont Extension, USDA ERS and NOFA VT shows that in 2009 government payments through the MILC program provided the difference between profit and loss for many producers.

A quick overview of the situation is:

  • Sales of organic dairy are increasing by 10+% year over year, although there are regional and seasonal fluctuations in sales of fluid milk on a monthly basis;
  • There are only two national buyers for wholesale organic milk and some regional pools of milk have disappeared while others have remained strong and competitive; Organic Valley merged with the 53 organic producers from Lancaster County Organic Farmers Cooperative (LOFCO) in February 15, 2011.
  • All companies are looking to sign up producers and support any transitioning farms;
  • Pay price remains stable with seasonal deductions, and all processors adding their winter incentive of $3-4 /cwt;
  • The producers who shipped to HP Hood/Kemp/DMS to supply the milk for the Stonyfield fluid milk brand and chose to stay with the CROPP pool, have become full members of CROPP, with about 40 producers leaving the pool during the transition.
  • While demand is strong competition at the retail level is aggressive between the two main companies but also from tractor trailer loads of milk which enter the market as store brand/private label milk. The average retail price per half gallon is the lowest it has been in two years.
  • On the cost side, the organic grain market has started to respond to increased scarcity of corn and a rising conventional market. The price of feed corn has risen by approximately 36% compared to March 2010 and by 30% on November 2010, and was at $8.60/bushel in February, 2011. Organic soybean and other proteins are slower to rise with an increase of approximately 10% from November 2010, with a bushel price of $18.61 for soybeans and $781/ton for soybean meal. Availability and price for organic feed in 2011-2012, will be determined by the planting decisions of organic crop producers as well as the planting conditions. The inevitable question is whether there will continue to be enough organically certified feed to supply an expanding organic milk market and at what price.

Retail sales

Sales of organic fluid milk are the highest in 2 years, more value added organic dairy products are being marketed and processors are increasing the use of packaging that reduces wastage and ensures longer shelf life. There is aggressive competition in the market place with the Horizon Organic brand as the market leader with 51.8 million units of reduced fat sales from September 2009-September2010, and sales of 20.1 million units of whole milk, 4 times as much as Organic Valley . WhiteWave is phasing out the Organic Cow brand to consolidate and improve the marketing of their principle Horizon Organic brand. Organic Valley is expanding their range of products with flavored milk, ½ and ½ , Hazelnut creamer, organic flavored soy drink and have strong sales of their Stonyfield milk brand, plus increased sales of non-fluid milk to Stonyfield Farm for their products. Organic Valley recently signed an agreement to provide HTST milk for NY Fresh from NY farmers’ milk by partnering with Elmhurst Dairy in Roxbury, NY.

  • Organic dairy has shown a greater degree of stability and growth than non-organic dairy. Organic milk sales increased during three of the last four years, declining only during 2009 in contrast to fluid milk products sales of organic and non-organic milk combined, which declined during three of the last four years, using 2010 data through October. Organic fluid milk product sales as a percentage of total milk products sales have shown a steady increase: 2007, 2.36%; 2008, 2.8%; 2009, 2.72%; and 2010, 3.23%.

U.S. Sales of Fluid Milk Products Yearly Percentage Change From Prior Year (USDA AMS)




2010 thru October







Reduced Fat





Total organic and non-organic fluid milk





  • USDA Agricultural Marketing Services (AMS) reports organic whole milk sales for December 2010 are up 27% compared with December 2009 and up 16% year-to-date compared with 1 year ago. December 2010 sales were 42 million pounds, the highest sales recorded by USDA AMS since January 2008 and year-to-date sales were 432 million pounds.
  • Total organic milk products sales for December 2010 are up 21.0% from previous year’s sales and up 12% year-to-date compared with 1 year ago. December sales were 168 million pounds and year-to-date through December was 1.799 billion pounds.
  • Sales of organic milk products rebounded during 2010, in contrast with sales of total milk products, which declined.


With the rebound of the non-organic market, the price gap between organic and non-organic retail pricing has decreased, down from a high of $2.32 in August 2009 to $2.07 in February 2011. The narrower the gap the more attractive organic milk will be for price conscious consumers.


  • The average price of organic half gallons dropped to an all-time low of $3.66 in December 2010 from a high of $3.86 in December 2008. The range of retail prices are a low of $2.88 in Denver, CO, to a high of $4.99 in Minneapolis, MN.

Pay Price

There are only two national organic procurement companies, plus some smaller regional groups of up to 50 producers such as LOFCO and Upstate Niagara, smaller cooperatives/companies, individual processors such as Butterworks Farm, Strafford Organic Creamery and Empire Organics, and a few established dairies that are expanding into organics such as Foster Farms and Cloverland Dairy.


Horizon Organic

During 2009 and early 2010, Horizon reported that many producers cooperated with voluntary requests for a 5% or more drop in production; that they did not terminate contracts; and that they honored contracts given to transitioning producers. They are now encouraging producers to increase production. Producer reports indicate that Horizon dropped its $1/cwt MAP for the summer but maintained its pay price; an average base of $25/cwt and a $3/cwt premium in October, November, December and January, although there is some variation in contracted pay-price. The contracts that Horizon is presenting to its producers have changed between 2008 and 2009. Some changes are:

  • Horizon representatives have complete access to organic files at the certifier’s office and elsewhere;
  • The company is able to terminate or suspend the contract immediately if the company believes the producer’s certifier “has questioned or is investigating” any part of the Organic Systems Plan for non-compliance;
  • Horizon can change the pay-price for an individual producer with 30 days notice and they only need a written agreement from the producer if the amount is greater than 25% of the new base price;
  • Horizon can terminate the contract if the producer can only supply 80% of the agreed volume and producers need company approval for any increase over 20%;
  • Horizon retains the right to decrease the agreed base volume they will purchase by up to 20% with 90 days notice;
  • Horizon retains the right to charge for hauling (currently there is no hauling charge);
  • Horizon has the ability to terminate for cause if the producer “engages in any activity which is not consistent with the principles underlying organic production” or if “that activity is subject to any publicity (including media or internet).”
  • Horizon has retained the “Mutual Confidentiality” clause that allows the producer to consult only with professional advisors on contract conditions and restricts their right to share information with other producers.

As Horizon renews contracts they will favor those producers who are located near to processing plants, have consistently good quality milk tests, and have a good relationship with the company. Horizon says it needs the contract changes in order to compete against other companies in buying raw milk. Many producers are concerned that the contracts are now more restrictive and give the company more power to alter their agreements as market conditions change.

Organic Valley

OV sales in 2009 were $523 million, down 1.3 percent from the previous year, and it was the first time the 23-year-old company had experienced lower year-over-year sales. 2010 sales were $621 million slightly down from the November projection of about $630 million in sales for 2010, although in line with previous projections in September ($622 million) and in June ($603 million).

Organic Valley has a new agreement with Stonyfield which will add about $60 million to its 2010 annual sales for production Greek Yoghurt and the expansion of its New York Fresh brand bottled at Elmhurst Dairy in NY. Members of Organic Valley, including the new members from the Stonyfield pool, will receive their 13th check for $0.47 per hundred pounds in the next few weeks. Their Northeast pay price will not change at:

Base Component Price: $26.82/cwt.

Based on component levels of 3.5% Butterfat; 3.05% Protein; 5.65% Other Solids


CROPP will use a pay price program based on product utilization.

Butterfat $1.95 per pound
Protein $1.86 per pound
Other Solids $1.65 per pound


There will be a $180.00 ($2,160/ year) stop charge per month for CROPP producers.


The Cooperative’s pay price plan incorporates a scheduled seasonal pay price variation to provide an incentive for level production, as determined by Dairy Executive Committee policy and Board of Directors directive:

  • A $1.00/cwt deduct will be applied for the months of May, June and July to offset the financial burden of spring flush utilization, transportation and inventory allowance.
  • A $3.00/cwt increase for all milk that is received in January, February and December 2011.


To meet the requirements of the Dairy Pool Capital Base Plan, CROPP farmers are required to purchase preferred stock equivalent to 5.5% of their annual base gross income. Calculation of this is based on:

  • the pay program of the Member’s region,
  • the individual Member’s components
  • the Member’s established production base.

OV is discussing new policies on off-farm diversion, farm conditions, cooperative conduct and maximum herd size. OV is also being pro-active with their own animal care program in anticipation of the work of the NOSB and concerns of customers. CROPP is watching the increase in feed prices and working with i

Source Dairy Foods November 2010 from Symphonyl RI Group