Organic Pay & Retail Price Update, March 2013

By Ed Maltby, NODPA Executive Director

ADDED March 18, 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 others, for example MOO Milk in Maine, 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

On March 8th 2013, AMS reported that total organic fluid sales for December 2012 of 174 million pounds, were down 4.3% from December 2011, but up 2.9% January through December 2012 compared with 2011. Organic whole milk sales for December 2012, 48 million pounds, were up 8.2% compared with December 2011, and up 10.4% January through December 2012 compared with 2011. Organic Fat-Reduced milk sales for December 2012 of 126 million pounds, were down 8.4% compared with December 2011, but up 0.6% January through December 2012 compared with 2011.

The national weighted average advertised price of organic milk half gallons, $3.40, is 9 cents lower than two weeks ago, which was 26 cents lower than four weeks ago. The price range, $2.50 to $5.00 decreased 49 cents at the bottom and increased $1.01 at the top. 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, $2.50.

The current national organic half gallon milk weighted average advertised price of $3.40 compared with the weighted average advertised price for non-organic half gallons, $1.77, yields an organic-conventional half-gallon milk advertised price spread of $1.63. 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.

Posted: to Organic Pay, Feed & Grain Prices on Mon, Mar 18, 2013
Updated: Mon, Mar 18, 2013