cows in field

Pay price, feed and retail price update, March 2015


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Pay price moves up slowly as sales increase and shortages continue

By Ed Maltby, NODPA Executive Director

USDA AMS reports increases in retail sales of organic fluid milk in 2014 were up by 9.2% over sales in 2013, and total U.S. organic milk products’ sales as a percentage of total conventional milk products’ sales has trended up annually, from 1.92% in 2006 to 5.2% in 2014. As organic sales of retail fluid milk increase and conventional sales decrease interestingly it is whole organic milk that saw the highest increase in sales in 2014, with a 20.3% increase on 2013, and organic Fat Free (Skim) sales were down by 4.9% on 2013. This trend highlights the unique preference of buyers of organic milk who base their decisions on flavor, quality and the effect the product has on the environment, rather than just price.

Interest in the grass milk programs is continuing to increase, with more producers looking to satisfy the processor protocols to gain the higher pay price. For those that already have these production practices, this is a great opportunity. For those that are considering changing their practices to meet the processor requirements they should do some careful budgeting to ensure that the lower yields and the change in rations will work for their operations and the economic benefits are worth the change. They should also consider that these are currently processor requirements in a rapidly growing market and protocols could change to meet market demands.

Empty supermarket shelves are evidence of the shortages across the country, and regional processors are offering incentives and increased pay price to encourage producers to switch away from the two major national brands. Unfortunately, there is no evidence of producers transitioning from conventional production to organic, although the projected lower conventional price may act as an incentive if the new federal margin insurance does not work well enough for the small to mid-size operations. Organic processors are also looking to the efficiency of their trucking routes and their distance from the processing plants in their procurement decision making. One of the bigger questions that producers are asking is about the future of their Horizon/WhiteWave contracts as there are rumors that the company
will be moving away from direct procurement and contracts with producers, to another model, as the company expands into other areas. The increase in consumer demand has stimulated an increase in imports with both organic cheese and powder coming in from Australia, and being distributed by CROPP; organic beef coming in from Australia, Uruguay and Canada and being co-mingled and sold as store brand product and an increase in the importation of organic grains with over 60% of organic grain used in the US being imported.

As with everything this year the weather will affect how soon we will see pasture, especially in the northeast, and on the availability and quality of feed. The winter weather has had a measurable adverse effect on livestock and grain markets, plus slowed down and complicated transportation of product, which has been further complicated by labor disputes at the West coast ports. Some areas in the Midwest have seen more ice and blowing soil than piles of snow, although there is no change in the price of organic corn and soybeans, FOB farm.

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