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The latest USDA AMS national data reports total organic milk products sales for February 2017 were 203 million pounds, down 4.8% from the previous February. January-February 2017 sales are even with January-February 2016. Total organic whole milk products sales for February 2017, 76 million pounds, were up 1.7% compared with February last year and up 7.2%, January-February compared with the same period of 2016.
March 2017 has seen increases in organic milk sales in the Northeast. The Federal Milk Market Order 1 reports the volumes for the use of all types of fluid (retail sales) organic milk by pool plants. Unfortunately, they don’t yet report the use for manufacturing milk and other components. During March 2017, organic whole milk utilization totaled 16.3 million pounds, up from 14.6 million one year earlier, an 11.6% increase. Organic reduced fat milk utilization for March 2017, 23.1 million pounds, was up from 21.8 million pounds in March 2016, a 6.2% increase. During February, pooled milk not previously entering the northeast began to ship into the order from Wisconsin and pooled milk previously shipping to the order from sources in West Virginia and Ohio was not.
Pay prices are tumbling and all transitioning dairies are being told to wait for a year before they can transition. Organic Valley announced further drops in price with their $1/cwt “inventory management deduction” that went into effect May 1st and will continue “until conditions warrant otherwise.” This is on top of the $1 deduction for the spring flush milk surplus in May, June and July and the $2/cwt price reduction last year. The Organic Valley quota based on the active base, except for those producing less than 270,000 pounds, grassmilk producers and ‘foundational loads’, went into effect 3/1/17, with the $20 deduct for any milk over the quota volume. In addition, Organic Valley “strongly request(s)” that members voluntarily reduce production. Some OV producer owners are now reflecting back on Organic Valley’s knowingly taking on another 400 new members a couple years ago despite record low conventional milk prices that were forecast to continue for the long term.
Other buyers in the northeast are dropping pay price including Upstate which has dropped its Market Adjustment Premium by $2 as of April 1st. Maple Hill has dropped its price by $2 for May & June milk. Maple Hill is giving financial incentives to its producers to reduce milk with payments to cull cows, raise calves on cows, and other production practices. DanoneWave (WhiteWave/Horizon) has asked for a volume reduction of 5% and has dropped its pay price. We saw this in 2009, and the same is happening again. The answer has always been more attention to supply management which producers have been requesting for the last ten years, rather than rapidly expanding gross sales. DanoneWave appears to have paid better attention to that than CROPP.
The Department of Justice announced on April 3rd 2017 that it requires Danone S.A. to divest Danone’s Stonyfield Farms business in order for Danone to proceed with its $12.5 billion acquisition of WhiteWave Foods Company, Inc. “The proposed acquisition would have blunted competition between the top two purchasers of raw organic milk in the Northeast and the producers of the three leading brands of organic milk in the United States,” said Acting Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division. “Today’s proposed settlement will ensure competitive marketplaces for both farmers in the northeast that sell raw organic milk and consumers who purchase fluid organic milk in stores nationwide.”
Danone and WhiteWave will now combine their activities in North America to operate as a Strategic Business Unit, named “DanoneWave”.
In looking at the buyers for Stonyfield, Dean’s name has obviously been mentioned as has Uniliver (Ben & Jerry’s), General Mills, Aurora Dairy Group, Yili Industrial Group Co, Chobani and PepsiCo, as it is a valuable entry point into organic dairy with an established market and a dedicated supply.
CROPP has also been named as a possible buyer. Any prospective buyer will need to identify what supply agreements they intend to enter into once they own Stonyfield. The supply agreement with CROPP has approximately three years to run and the assumption is that any buyer will continue to honor that agreement. In the best possible future scenario, Stonyfield will expand its own pool of milk and increase the number of buyers in the northeast to three major buyers rather than the two, which will be the best interpretation of the DOJ’s ruling. Stonyfield also has the option of working with other smaller buyers and Dairy Marketing Services to source their long term supply. Whatever way it goes, the DOJ ruling is a good solution for organic dairy producers as it is an opportunity to expand competition for organic farmgate milk and deprive DanoneWave from any intimidation of CROPP by holding supply contracts as leverage for their cooperation on the supply side and in the organic consumer market.
Aurora Dairy has broken ground for its new plant and farming operations in Columbia, Missouri. Aurora officials are saying they will be adding 30,000 cows worth of organic production in Missouri and the manufacturing plant they will be building will be much larger than their present facility in Platteville, Colorado. Aurora, owned by AG Real Value Fund and managed by Teays River Investments, obviously sees expanding their operations and sales in the store brand/private label market as profitable. CROPP and other smaller cooperatives will have difficulty competing for store brand sales against this vertically integrated, well financed, low-cost and, some say, fraudulent company. The CROPP/Dean joint venture that was launched ahead of schedule may well be able to slowly build a larger consumer base for its HTST milk but that will take years rather than months and is in no way certain, especially as the store door delivery that Dean offers encompasses many non-traditional retail outlets for organic product, for example package stores which offer low priced milk rather than value added products.
Feed corn is still trading at $7-8 per bushel, about $1 lower than February, 2016, and soybeans are priced at $16-18 per bushel as compared with $21.50 in February, 2016. Organic hay costs are within the same range as last year, with hay being offered at $50 per round bale or $150-200 a ton FOB with a good supply. Cheap foreign feed still dominates the market and undercuts domestic producers. U.S. organic producers undergo the highest-integrity organic inspections and certification processes in the world. While the USDA NOP strives to maintain this integrity across the globe, we know, realistically, that it is impossible to conduct the same type of rigorous organic inspection and traceability in countries at war, like Turkey and Ukraine, where most of our current organic corn imports are coming from. The recent increased demand for organic products, from $29,023 million in 2012 to $39,754 million, has increased the importation of organic commodities which are cheaper than domestic product. USDA ERS data currently shows that 60-70 percent of U.S. soybeans are imported with some knowledgeable industry people putting that figure at up to 90%, and 40% of U.S. organic corn supplies are imported. According to federal trade statistics, the value of U.S. organic corn imports soared in 2016 to $160.4 million, a 42 percent increase compared to 2015, and up 350 percent compared to 2014. The domestic price for organic corn as recorded by USDA AMS in 2013 averaged $12.5 per bushel; in 2016 the average price was $8.65. The average cost of production for domestic corn is $10 per bushel. Over the past year, bulk ship loads of imported organic grain caused the pay price offered to U.S. organic farmers to drop under this foreign competition.