cows in field

Pay and Feed Prices: January/February 2020

By Ed Maltby, NODPA Executive Director

Good news, or at least not bad news, on retail sales of organic dairy product for October 2019. Bad news is that Danone has outsourced their procurement to a small regional dairy whose ownership is not transparent nor is their operating entity described accurately by Danone. Horizon suppliers have been through many buyers – this is another unnecessary complication.

The Agricultural Marketing Service (AMS) reported that estimated US retail sales of organic milk products for October 2019 were 230 million pounds, up 0.9 percent from October 2018, but down 2.2 percent compared to January-October 2018.

Organic whole milk sales for October 2019, 104 million pounds, are up 11.2 percent compared to a year earlier and up 4.4 percent compared with year-to-date 2018. Reduced fat milk (2%) sales were 75 million pounds, up 1.1 percent from the previous year and up 0.7 percent year-to-date 2018.

In December 2019, Danone North America announced in a letter to its producers a change in the procurement relationship between the company and its ‘Dairy Farmer Partners’ as of January 2020. They failed to even acknowledge that they were working with organic farmers. In their letter to their ‘partners’ they acknowledge the retirement of their long time and well respected fieldman (Producer Relations Manager) Peter Slaunwhite and inform their producers that ‘Danone North America/Horizon has selected Kalona Farms (which is operating under Small Farm Program LLC) as a connection point.” In other words they outsourced their relationship with producers.

Who or what is Kalona Farms? The description in the Danone letter - Kalona Farms (which is operating under Small Farm Program LLC) - does not match up with the Iowa Secretary of State registration which has the Small Farm Program LLC as a separate code 489 Domestic Liability Corporation organized by Bill Evans, not part of Kalona Farms. Kalona Farms legal name is Milk Procurement of Iowa LLC organized by Bill Evans. From their website Kalona Farms is described as: Kalona SuperNatural™ began in 2005 when owner Bill Evans and his family moved to rural Kalona, Iowa. Over time, Bill’s connection to the Amish and Mennonite farmers and the land, as well as his background in finance, led him to create Kalona Organics, which oversaw the distribution of the Farmers’ All Natural Creamery and Cultural Revolution brands. In 2010 these brands consolidated to form the Kalona SuperNatural brand that you know and love. Today, the company, which operates out of 3 rural facilities in Kalona, Iowa, provides a market for small organic farmers.”

According to the Iowa Secretary of State the Small Farm Program LLC was registered on March 3, 2019 and is organized by Bill Evans. There is no information about any of the members of the LLC or officers. Kalona Farms is part of the family of companies under the Open Gates Group which is described in its LinkedIn page as “the Open Gates Business Development Corporation, known as Open Gates Group, Awesome Construction, Frytown Distribution, Hoards Bakery, consists of 8 companies located in the Kalona, Iowa area. Each company reflects the entrepreneurial culture created by founder, Bill Evans. Open Gates Group oversees and manages the family of companies and also provides them with accounting, human resources, training, and marketing support. Each business is operated by a managing partner(s) who manages the day-to- day duties and ensures the company’s success. As needs arise within our family of companies, Bill, and his like-minded leadership team, evaluate the need and decide if a new company is needed to fill the void. The contact person for Horizon producers in the future if they have any question is Phil Forbes, Kalona Farms whose email is Pick which company you are dealing with!

It seems to be a massive change for a small company to take over procurement and contract relationships with producers at this difficult time for all organic dairies. Who is Bill Evans? Who actually controls the Small Farm Program LLC? Who will be protecting producer’s propriety data and making decisions on whether they meet the requirements for quality and component payments? What is the conflict with the supply needs of Kalona? Horizon producers have seen many different companies and owners buying their product as CEO’s and others made millions of dollar for themselves as the brand was bought and sold over the last decade. From Dean Foods to WhiteWave and then selling to Danone, Greg Engles, in particular, netted a fortune while leaving devastation in his wake, part of the reason for the Dean bankruptcy.

It has been widely accepted that milk buyers have a monopoly on the supply side of the organic market and this type of activity from one of the only two national brands will trigger mistrust and concern from producers. Transparency needs to be a very clear objective of any procurement agreement. Danone North America which as a B Corp adheres to the ideal of “meeting the highest standards of overall social and environmental performance, transparency and accountability and aspire to use the power of business to solve social and environmental problems” (from their website). Now is the time for them to live by their proclaimed and marketed ideals and treat their organic dairy suppliers with respect even as they make their contracts more complicated and the achievement of quality payments more difficult.

News from CROPP Cooperative does not seem to be any better. The uncertainty around the future of their joint venture with Dean, plus reports from California that they want to remove many thousands of cows from their supply, does not provide confidence in any future increases in pay price. CROPP has their own problems with their manufacturing plant in Oregon, with ongoing illegal dumping of milk. While this problem originates from before CROPP purchased the plant, CROPP has been slow to solve what seems to be a failure of the quality control programs at the plant. The Oregon Statesman Journal reported that Organic Valley had recently upgraded systems designed to prevent accidental discharges at the McMinnville plant, and has reviewed proper procedures with production employees, quoting CROPP’s spokeswoman Elizabeth McMullen. The newspaper reported that McMullen said the company does not plan to appeal the fine. The CROPP organic meat brands, Organic Prairie and Mighty Organic, are reliant on imports from Australia which will undoubtedly be affected by the disastrous bush fires engulfing the country. Perhaps that might increase the demand and price for US organic beef and cull cows. At the time of writing, CROPP has not published its 2020 pay price schedule but with the growth of private label and store brands it does not seem positive for any increase in pay price.

We’ve been following the sad stories about Trickling Springs, and learned that dairy farmers weren’t only faced with losing their milk market – many of them, as well as hundreds of others, had lent what amounted to millions of dollars to the company through one of its owners. They may never be repaid. Through the Eastern Pennsylvania Mennonite Church, bishops have asked three deacons to set up a fund to receive contributions from interested persons, and to distribute the funds to church groups in proportion to the percentage of investments held by its members. Funds will not be distributed pro-rata to investors, but to local deacons who can identify the needy situations within their own group and disburse funds accordingly. A fund has been established called the Caring and Sharing Fund which can receive charitable contributions and issue a receipt to the donor for tax purposes. Distribution of funds will be made periodically as the deacon committee determines. Anyone wishing to contribute to this fund may make checks payable to: Caring and Sharing Fund, c/o Duane Martin, 779 Spruce Road, New Holland, PA, 17557.

The price for organic feed-grade corn and soybeans in the fourth quarter averaged the same as fourth-quarter 2018 values. Organic corn prices averaged $8.53 per bushel in December 2019 and organic soybeans $18.50 per bushel as reported by USDA AMS. As has been widely reported, the U.S. corn harvest has struggled this year, more than three weeks behind the five-year average. With the delayed harvest, crop yields and quality have become a primary concern and market trading activity has remained tepid over the fourth quarter.

In a December market update, the organic and non-G.M.O. trading platform and market information company Mercaris noted that imports of organic feed-grade corn slowed, and domestic prices declined in the September-November period, as they typically do in the first quarter of a new marketing year (began Sept. 1 for corn and soybeans). But imports for the year were higher as buyers anticipated this year’s reduced corn harvest. The market indicated strong imports and slack demand for organic feed-grade corn may keep prices subdued as the marketing year progresses.

The demand for organic feed-grade grain and soy protein is driven more by the organic poultry markets with the contraction of the organic dairy supply market. Mercaris reports that organic broiler meat production in November was down 3% from October but was up 6% from a year earlier, due in part to different timing of the Thanksgiving holiday this year. For the full year, Mercaris expects broiler slaughter down 2% from 2018. Organic, cage-free egg production, meanwhile, continued to grow. Egg layer numbers were at a record high at 16.2 million birds in November, up 7% from 2018.

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