By Ed Maltby, NODPA Executive Director
April 2019 was not a good month for organic dairy retail sales. They hit a low level not seen since September 2012, although at that time the sale of non-fat organic milk products was the stronger preference over whole milk products. Agricultural Marketing Service (AMS) reports that total sales of organic milk products for April 2019, 176 million pounds, declined 16.5 percent from April 2018 and dwindled to 7.4 percent compared with the same January-April period last year. Total organic whole milk sales for April 2019, 75 million pounds was down 13.2 percent compared with April last year, and 1.6 percent lower, compared to year-to-date 2018.
No better news on the sale of organic cull cows. A June 13, 2019 organic slaughter cow report from a livestock auction yard in the Northwest noted organic cows traded abnormally lower than conventional cows. The average price paid for the top 10 organic cows auctioned was $44.47 per cwt, compared to the average top 10 conventional cow price, $67.27 per cwt.
To add to the stress of organic dairies, especially those small to mid-size operations that do not have any cash reserves and any small adjustment has a proportionally higher effect, Danone North America announced changes in the price they will pay for organic milk. The areas they are targeting are milk hauling, volume premiums, Quality Programs and Butterfat. With the good news first – butterfat is being raised by $0.10 per lb. to $2.60/ lb. The rest is all bad news: the implementation of a shared Milk Hauling Fee of $0.25/cwt, the removal of all volume premiums, and the updates to their quality program. The changes to the quality program are detailed and will affect producers very differently. One producer’s quick calculation for the lost gross income for their own herd producing approximately 80,000 lb. of milk is that they will lose $1,800 per month. The quest for milk with lower Somatic Cell Counts, lower PI Count and lower Standard Plate Counts is a goal for all producers and is tied to healthier cows and long shelf life for milk (although the ultra-pasteurization must take care of all issue of taste and character of the milk!). In the new program, bonuses are tied to the higher standards, rapidly disappearing into penalties for any operation that has lower tests or herd problems. The effects of these quality payments on producers’ bottom lines will vary and will require that the milk quality bonuses be paid on the lowest of the requirements from monthly testing. For example: If SCC achievement is Tier 1, SPC achievement is Tier 2, and PI achievement is Tier 3, the quality bonus will be paid at the Tier 3 level, making it much more difficult to achieve the higher levels of bonus. See table below:
Danone NA Milk Quality Premium Program
|
|
Tier1 ($2.50/cwt. Total) |
Tier2 ($1.50/cwt. Total) |
Tier3 ($0.50/cwt. Total) |
|
Standard Plate Count (SPC) |
< 2,000/ ml |
< 2,000/ ml |
< 2,000/ ml |
|
PI Count (PI) |
< 2,000/ ml |
< 2,000/ ml |
< 2,000/ ml |
|
Somatic Cell Count (SCC) |
< 2,000/ ml |
< 2,000/ ml |
< 2,000/ ml |
Along with the bonuses come deductions for poor testing on the monthly raw milk. See table below:
|
|
Monthly average |
Deduction /Calendar Month/cwt |
|
SPC |
>25,000/ml |
- $ 0.25/cwt |
|
PI |
>100,000/ml |
- $ 1.00/cwt |
|
SCC |
>400,000/ml |
- $ 1.00/ cwt |
Although Danone may be striving to “pay a fair and competitive price to you, our farming partners, and we (Danone) work hard to balance the needs of our farmers, customers and consumers,” it seems they are failing their ‘partner’ with the least leverage at this time of supply surplus.
CROPP Cooperative is continuing to go through changes and it is reported that they have laid off 39 of their employees. The La Farge-based organic cooperative eliminated the office positions over the past 60 days, said Elizabeth McMullen, Organic Valley spokesperson. These positions made up about 5% of their general and administrative positions, McMullen said. There are still about 950 employees at CROPP Cooperative. CROPP’s joint venture with Dean Foods is at risk as well. On 6/25/2019, Dean Foods Co. shares closed at less than $1 for the first time since they started trading more than two decades ago. Dean’s value has gone from a peak of $6.2 billion in 2007 to about $90 million now. Dean’s commitment to supply store brand milk, plus stores like Walmart, that is now building its own processing plant(s), has caused the slide in value. While Dean is looking to sell assets, much of the interest is in possible debt restructuring. Its bonds have been trading at distressed levels, and that’s led its equity to trade at “nuisance” levels, said Hoai Ngo, senior credit analyst at Bloomberg Intelligence. In other words, the way bonds are trading, there wouldn’t be enough value left in a bankruptcy proceeding to pay equity shareholders.
The question is where does this leave CROPP? What will be the effect of any restructuring on processing plants used by CROPP, especially for Grass Fed branded milk? Will the joint venture continue with a different partner or will CROPP have to buy out Dean or will it end and any CROPP investment will be lost?
Lactalis, owners of Stonyfield are slowly increasing their footprint in the US. The world's biggest dairy company, which purchased Stonyfield Yogurt in 2017, now owns Commonwealth Dairy, a yogurt maker with facilities in Brattleboro, VT and Casa Grande, Ariz. This is the fourth Lactalis purchase in the United States in the past two years. With the addition of Commonwealth Dairy, Lactalis now has eight factories and more than 2,400 employees in the U.S.
Crop Planting Update
Both conventional and organic planting has been hammered by the excessive rainfall. According to the June 24, 2019 release of the NASS Crop Progress report, 96 percent of the corn has been planted in the 18 states, 4 percent less than the average. Also, only 89 percent of new crop has emerged, when compared to the previous 5 year average of 99 percent. Soybean planted acres are at 85 percent, below the five-year average of 97 percent. Soybean crops emerged is 71 percent, below the 91 percent, 5-year average. Organic corn and soybean prices remain stable, but it’s difficult to know how the weather and ground conditions have affected both yield and quality. The domestic price for organic corn and soybeans is partly determined by the volume of imports. The integrity of these imports is determined by the actions of the NOP. In a recent article in the Minneapolis Star Tribune, Betsy Rakola, organic compliance director at the U.S. Department of Agriculture (USDA) is quoted as saying “Overseeing a global supply chain with 40 people is no joke,” and organic certification “is a public-private process-based system, and that traceability means anything that comes in with an organic certification can be sold as organic.” John Bobbe, previously Executive Director of OFARM, has been leading the fight to ensure that NOP is using all of the means at the disposal of a Federal program to ensure organic compliance. He accurately states that if the NOP is continuing down the same old path, simply inspecting farms in other countries like they do in the U.S., it will not going to get at the corruption in the supply chain. If the NOP dos not have the resources to inspect every ship, they need to work with the U.S. Customs and Border Protection who are on every ship and could get the paperwork. It appears that more questionable organic grain has been rejected from entering the country because it comes from a nation from which whole corn is prohibited because of fear of pest contamination. If USDA’s Animal and Plant Health Inspection Service and the U.S. Customs and Border Protection work together on stopping illegal grain imports, then where is the cooperative agreement with USDA NOP to look at all the paperwork on incoming organic imports?
Organic farming is no joke – protecting the integrity of the organic seal is what USDA signed up for and they need to use all of the tools at their disposal to protect it.
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