Organic Pay & Retail Price, September 2013

Update

By Ed Maltby, NODPA Executive Director

Organic fluid milk sales are growing steadily with some strong competition in the dairy case in the northeast as Horizon Organic maintain the number one position in retail sales, with sales of store brand/private label in second place. While the average retail price remains fairly stable the low end of the retail price is currently $2.59 per half gallon which will be for in-store brand promotions and store brand loss leader promotions as organic milk is used to attract organic shoppers. All brands and store brands are offering specials depending on geographic location and willingness to use organic milk as a loss leader. Contracted pay price for producers hasn’t changed and with component and quality bonuses the farm-gate price is reaching the mid $30 per hundred for many producers but profitability for all but the most established organic farms is still dropping. Organic Valley has sent its member-owners notice of a 100% base quota (they will only pay full organic price for the base production agreed between the company and producer) with a $12.00 per cwt deduct for milk produced over that quota each month starting with October 1st 2013 production. This was imposed because of a drop in demand from their largest purchaser of milk for manufacturing, Stonyfield Farms yoghurt owned by dairy giant Danone, and will remain in effect until conditions improve for Organic Valley. Organic Valley are confident that their sales growth will absorb any surplus milk. This base quota will adversely affect those producers who have recently expanded, those recently transitioned, or those that regularly produce over their agreed base. While the cooperative leaders are optimistic that they will not have to impose an actual quota they are also facing an initiative by Stonyfield to investigate setting up their own milk pool in the Northeast. Stonyfield executives are hiring consultants and meeting with organic dairy producers who would fit their requirements for a consistent quality supply. Stonyfield expect to make a decision on whether to have their own pool by the end of 2013 with an aim of securing milk contracts in 2014. They are still in the investigative stages of the process and are looking at different ways to calculate pay price including a cost plus method plus other incentives they can offer producers. They will be holding more meetings in Maine and New York and welcome comments and questions from producers. In the past the introduction of another buyer into the raw organic milk market has caused an increase in pay price but Stonyfield have stated in the past their need to meet Danone’s expectations for sales volume increases year over year while maintaining the same margins. The assumption is that this initiative by Stonyfield will be looking to cut their manufacturing costs by reducing trucking and pooling costs not by lowering the pay price to producers.

MILC has been extended through August 31, 2013 at a payment rate of 45%, covering 2.985 million total pounds of milk per year with a feed adjuster factor of $7.35. In September 2013, the payment rate falls to 34%, the milk production covered drops to 2.4 million total pounds, and the feed adjuster factor goes up to $9.50. What happens next is in the hands of the trusted politicians in Congress hopefully guided by Senator Leahy who has always championed dairy producer interests.

USDA Agricultural Marketing Service reports total organic milk products sales for June 2013 of 179 million pounds, up 5.8% from June last year. Organic Whole Milk sales for June 2013 of 47 million pounds were up 8.2% compared with June last year and up 8.9% year-to-date compared with last year. Organic Reduced Fat Milk sales for May of 51 million pounds were 12.6% above sales one year earlier and 9.7% above year-to-date sales last year. The weighted average advertised price of organic milk half gallons is $3.50 and the price range declined at the top and bottom of the price range, $4.49 to $2.59. One year ago the weighted average advertised price was $3.91. The Northeast has the highest weighted average price, $3.76, while the South Central Region has the lowest weighted average price this period, $2.91. The organic-conventional half-gallon price spread is $2.09, compared to an average over the year of $1.80.

Posted: to Organic Pay, Feed & Grain Prices on Sun, Sep 1, 2013
Updated: Sun, Sep 1, 2013