cows in field

Organic Pay, Retail and Feed Price, January 2019

The good news for the start of 2019 is that sales of organic dairy at the retail level is holding in the same pattern of level demand for the non-fat categories and a seven per cent steady increase in organic whole milk. The continuing bad news is that producers are continuing to lose their markets and that now includes 100% grass fed operations.

USDA Agricultural Market Service (AMS) reports that retail sales in October 2018 were 228 million pounds, up 4.7 percent from the same month in 2017 and up 0.7 percent, January to October 2018, compared with the same period in 2017. Sales of organic whole milk were at 93 million pounds in October 2018, up 7.1 percent over October 2017, and up 4.9 per cent over year to date comparison with 2017.

Reports for November 2018 on utilization of Class 1 organic milk in the Federal Milk Marketing Order One follows the national trend with a 4.74 percent increase in organic Whole Milk and a drop of 9.54 percent of organic Reduced Fat compared with the same period in 2017.

At the time of printing, CROPP Cooperative has not made available their 2019 pay price summary but the assumption is that there will not be much change on 2018. In 2018, Class III conventional prices will average the lowest since 2010 and the projections for 2019 are not much better, especially with the uncertainty in the international trade markets and a higher than usual volume of conventional milk going into powder and cheese in December 2018. Any surplus organic milk sold into the conventional market in 2019 cannot expect to get increased value than it did in 2018. Danone NA does not plan for any changes in pay price in 2019 but have confidence that they have more control over their supply. They intend to use their experience with their existing pool of GMO-free producers to introduce supply side protocols for animal welfare that their company and brand apply and enforce around the world. They join producers in advocating for greater enforcement and organic integrity, and are looking at different ideas for implementing cost-plus pay price and new ideas to solve the ever increasing hauling cost of farm milk pick up. Byrne Dairy has received over $15 million in grants and tax credits to expand their existing plants and are committed to supporting family farms in New York, “We're excited to begin this next chapter of Ultra Dairy's growth,” said Carl Byrne, president and chief executive officer of Byrne Dairy. “Our ability to expand to meet the growing demands of our customers is critical to the success of not only Byrne Dairy but also family farms throughout central New York.” Reports from producers are that they have lowered their organic pay price in new contracts and not renewed some contracts in the face of cheaper spot price milk coming in from the Midwest.

The news gets no better on the 100% grassfed organic supply. In the face of oversupply and having to sell into a low priced conventional market, Maple Hill Creamery will end its contract with its 28 non grass-fed organic producers by the end of 2019 and has dropped an unspecified number of its organic grass-fed farms. The total number is reported as being 40 operations that will lose their contracts. In a letter to producers, Founding Farmer and CEO Tim Joseph said, “We have also notified the remaining Maple Hill organic producers that due to the dynamics of the organic milk market in general, we have made the decision to end all organic milk contracts by the end of 2019. We have communicated this to all of our organic farms and encouraged them to move to an alternative organic market as soon as they are able or begin the process of transitioning to grass-fed as soon as possible. In addition, we have given notice to a number of our grass-fed farms as they are on routes or in locations that despite our best efforts to make work, we are simply not able to make hauling costs reasonable. We are reconfiguring routes to reduce costs as best we can and were forced to make tough decisions around farm location, production quantities and many other factors. No one factor was used to decide which farms would be impacted as it is complex problem to solve.” Inevitably the burden falls upon the small to mid-size operation many of whom are Amish when one talks about the economics of trucking routes and production quantities. At this point, the future of Maple Hill Creamery is uncertain as it struggles to survive in a difficult market. Back in November 2016, Sunrise Strategic Partners ("Sunrise"), a Boulder, CO-based accelerator of emerging brands co-founded by Steve Hughes and Trilantic North America (Trilantic North America currently manages six private equity fund families with aggregate capital commitments of $7.9 billion), became a minority investor in the company. Tim Joseph may be looking to attract more investors or increase its connection with CROPP Cooperative in the future as they finalize their grassfed standards. Hopefully, the outcome will be better for producers than the supply agreement between CROPP Cooperative and Trickling Springs. BUT, for producers left without a market any buyer is better than the conventional market.

Upstate Niagara Cooperative continues to be committed to their organic producers and a realistic supply program. All reports are that their conservative attitude to expansion and geographic market has allowed them to manage their organic supply even though they are now selling surplus organic into the conventional market instead of the organic one. However, their organic members did receive notice last fall that the Board of Director's reduced the Market Adjustment Premium from $2 to $0 as of 1/1/2019.

Organic feed corn at the farm is remaining steady at $9.36 per bushel and organic soybeans are at $18 per bushel. Compared to a five year average organic feed corn is about average but organic soybeans are below $5 below the five year average, not a great sign for organic soybean growers despite an intensified enforcement program by the USDA NOP. The Jacobsen reports that organic corn market participants are focused on several factors including domestic supply and imports. With prices currently above the average levels seen in January in 2017 ($7.75 per bushel) and 2018 ($8.75 per bushel) merchandisers are seeing a slowdown in rail car turnaround in the Pennsylvania area which means there could be a backlog of organic corn reaching the largest chicken inventory population in the United States. Farmers have yet to price approximately 40-50% of their current domestic harvest and continue to wait to assess the role that imports will play in early 2019.

Organic fraud is not restricted to imports. A Missouri farmer has pleaded guilty to federal fraud charges after he charged customers more than $140 million for conventionally produced grain sold as certified organic. Randy Constant, who farms near Chillicothe, Missouri, owned and operated a business called Organic Land Management, as well as a grain marketing firm in Iowa called Jericho Solutions. In federal court, Constant said he pocketed an enormous premium selling corn, wheat and soybeans as certified organic when they were not. The three farmers from Nebraska that supplied the grain have also agreed to plead guilty to fraudulently marketing nonorganic corn and soybeans as certified organic as part of a lengthy, multimillion-dollar scheme. Documents filed in federal court in Iowa show that Tom Brennan, James Brennan and Michael Potter each intend to plead guilty to wire fraud. Prosecutors allege that the three sold non-organic grains to an Iowa company that marketed them nationwide with an organic label. In particular, they allegedly used unapproved substances such as pesticides and nitrogen to grow the crops. The scheme allegedly lasted from 2007 until 2017.

Please click on the links, below, for pay price and feed price graphs.

Attached Files: